FIL 240 Lecture 14 Outline of Last Lecture I Constant Growth Perpetuity a Present Value Equation b D1 Equation c Example 1 d Example 2 II Annuity a Example b Rule III Yield on Bonds a Rule 1 b Rule 2 c Call able Bonds d Yield to Call IV Liquidity Money Supply a M0 b M1 c M2 d M3 Outline of Current Lecture I Need to Know for Exam a Bond Note Bill b Debt c Face Value d Risk Premium e Betas f Other Risk Measures g Finance vs Accounting h Federal Reserve i FOMC j Monetary Policy k ROE ROA relationship l Market cap beta common stock vs preferred call able bonds vs non call able II Parts of Exam III Part II of Exam These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute IV V VI a Percent Change of Ratios b Bond Quote c Risk d Quote or Price Bond e Yield to Maturity f CD volatility g CAPM h Payment on Loan i Effective yield Part III Possible Short Answers Practice Problems Current Lecture Review Information sheet will be posted online by professor at 7pm crucial to exam 98 25 982 5 bond interest is 17 50 get 100 FV 17 5 982 5 100 1 78 t bill yield I Need to Know a Difference between bond note bill b Debt issuer buyer purchaser c Face value of bond is 1000 d Risk premium parts of risk premium what is not risk premium i Maturity default illiquidity t bill has no risk premium gov bond does e Betas what it represents pivot points i Measures non diversifiable risk relative to the market portfolio f Other measures of risk i Business risk total measure contribution of operating leverage contribution of financial leverage g Difference between finance and accounting h Federal Reserve structure number of district banks i Federal Open Market Committee structure number of members j Monetary Policy i Demand for bonds changes the structure of tier 1 money supply increases bond supply decreases ii Contractionary monetary policy k ROE ROA relationahip i ROE can be negative doesn t mean the company is dead ii Times interest earned below 1 means the company is dead l Maket cap beta common stock vs preferred call able bond vs non call able m If a term was not brought up in class it won t be on the exam II Parts of Exam a 3 parts III IV V VI i Multiple choice 20 questions ii Math problems PV Annuity T bill yield iii Short answer iv 86 new terms on the exam v Quizzes are good prep for exam especially quiz 4 vi Multiple choice questions will be the most difficult Part 2 of Exam a Percent change of ratios round no more than 4 decimal places during problem Answer must be 2 decimal places MUST GIVE UNIT OF MEASURE etc b GIVE bond quote if it asks not bond price c Risk i Sales risk contribution of financial leverage contribution of operating leverage d Quote or price a bond e Yield to maturity assume semi annual coupon payments remember to multiply I by 2 f CD volatility g Find current price of Cosco common stock i CAPM h Payment on loan effective rate i Effective yield Part III a 5 essays write 4 b Answers with only one sentence each to the point Possible Short Answer Questions a What is liquidity b What does it mean that shareholders have residual claim to the cash flows of a corporation c What is beta d What is diversifiable risk e What is money f What are the 3 types of money g What are the Fed s 3 tools of monetary policy h What are the 3 functions of the Fed i What is financial intermediation NO financial institutions j What is opportunity cost k Why is accounting profit not useful in financial analysis in and of itself l What are 3 measures financial analysts would use for risk i Beta Standard Deviation CV Interest Rates Practice Problems a What is the effective yield on a loan with quarterly payments an APR of 7 45 i 1 0 0745 4 4 1 100 7 66 b Bond Price or Quote i KNC 4 85 2029 1 15 years to maturity 30 semiannual payments 2 Apps Finance TVM Solver 3 Yield is 5 04 Find Quote 4 I 5 04 2 5 PMT 48 50 2 6 FV 1000 7 PMT END 8 PV 980 17 9 Quote 98 02 c Yield to Maturity i If bond quote is at 104 28 find YTM ii PV 1042 80 iii I 2 28 2 4 46
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