FIL 240 1st Edition Lecture 25 Outline of Current Lecture I Part I a Questions b Number of Questions II Part II a Narrative b Bonds c Stock d NPV PV FV e Loan III Part III a Number of Questions b Possible Questions Current Lecture Review for Final I Part I a A little more than of the questions are exactly copied from previous exams of the others are just slightly different b 30 MC questions 3 pts each i Offerings of security Form 10K 8K S1 ii Reg 504 505 506 iii Securities act of 1933 1934 1 33 primary offerings of securities how to file 2 34 governing trades between people secondary market iv Costs what would be a major cost to a financial analyst that would be ignored by an accountant Opportunity cost 1 Sunk costs we don t want to know about these 2 Historical cost 3 Accounting profit vs economic profit accounting profit is larger doesn t include opp cost 4 Relationship between risk return a Greater the non diversifiable risk greater the expected return 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 b Diversifiable vs non diversifiable risk c CAPM i Names of components expected return for portfolio risk free rate expected extra you get for investing in the market expected market premium risk free d Yield on t bill i 97 50 selling for 975 dollars in 1 year earn 25 in interest 25 975 e Structure of Fed Reserve f Current chairman of federal reserve Janet Yellen previous Ben Bernanke g district banks who supervises regulates h 3 Roles of fed reserve regulator of banks bank for banks conducts monetary policy i 3 tools of monetary policy sets RR ratio sets discount rate does NOT set the federal funds rate conducts OMO to add drain liquidity j Kinds of money 3 levels of money i Barter fiat metal ii M1 M2 M3 1 M1 cash currency demand deposits travelers checks 2 M2 M1 NOW checking accounts at credit unions smaller time deposits 3 M3 M1 M2 huge illiquid assets euro dollars American dollars in foreign banks k Issuer vs buyer l Short term funds long term funds ST funds from money market LT funds from capital market m Beta measure of non diversifiable risk relative to the market portfolio n ratios II Part II a Narrative will be posted Saturday night i MCC problem ii Ratio analysis on financial statements iii Volatility Cv s b Bonds Price yield to maturity yield to call c Price of stock D1 k g i CAPM d NPV or PV or FV III e Find effective rate on a loan i Loan payment Part III a Given 7 choose 5 b Possible Questions i What is meant by the shareholders have residual claim on cash flows ii How can the shareholders residual claim be used by a corp 1 Dividends iii Relationship between non diversifiable risk and expected return iv What is the beta of the stock measure v Provide 3 different metrics of risk used in finance vi beta interest rates CV vii 3 tools of monetary policy viii What is meant by financial intermediation ix What are the 3 kinds of money x What is meant by liquidity xi What is the relationship between NPV and IRR xii What is the relationship between time to maturity and the price of a bond 1 As the time to maturity approaches 0 the bond price approaches 1000 xiii Difference between reg D 504 other exemptions from registration of an offering xiv What is meant by risk structure of an interest rate 1 What are components of an interest rate a Risk free rate risk structure b Risk structure default illiquidity xv What are the components of the risk free rate 1 Real rate expected inflation premium xvi Why is offering common stock a bad sign xvii What is optimal capital structure xviii Why do companies issue dividends xix Why do companies use equity financing if equity has such a high cost xx Explain 2 or 3 costs that are irrelevant in finance 1 Accounting costs historical cost
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