FIL 240 1st Edition Lecture25Outline of Current Lecture I. Part Ia. Questionsb. Number of QuestionsII. Part IIa. Narrativeb. Bondsc. Stockd. NPV/PV/FVe. LoanIII. Part IIIa. Number of Questionsb. Possible QuestionsCurrent LectureReview for FinalI. Part Ia. A little more than ½ of the questions are exactly copied from previous exams; ¼ of the others are just slightly differentb. 30 MC questions – 3 pts eachi. Offerings of security – Form 10K, 8K, S1,ii. Reg. 504, 505, 506iii. Securities act of 1933 & 19341. 33 – primary offerings of securities, how to file2. 34 – governing trades between people, secondary marketiv. Costs – what would be a major cost to a financial analyst that would be ignored by an accountant? Opportunity cost1. Sunk costs – we don’t want to know about these2. Historical cost3. Accounting profit vs. economic profit – accounting profit is larger; doesn’t include opp. cost4. Relationship between risk & returna. Greater the non-diversifiable risk, greater the expected returnThese 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 riskc. CAPMi. 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-billi. 97.50 – selling for $975 dollars, in 1 year earn $25 in interest; 25/975e. Structure of Fed. Reservef. Current chairman of federal reserve – Janet Yellen; previous – Ben Bernankeg. # district banks – who supervises; regulatesh. 3 Roles of fed reserve – regulator of banks, bank for banks, conducts monetary policyi. 3 tools of monetary policy – sets RR ratio, sets discount rate, does NOT set the federal funds rate, conducts OMO to add & drain liquidityj. Kinds of money – 3 levels of moneyi. Barter, fiat, metalii. M1, M2, M3 – 1. M1 – cash & currency, demand deposits, & travelers checks2. M2 – M1, NOW (checking accounts at creditunions), smaller time deposits3. M3 – M1 & M2, huge illiquid assets, euro dollars (American dollars in foreign banks)k. Issuer vs. buyerl. Short-term funds & long-term funds – ST funds from money market; LT funds from capital marketm. Beta – measure of non-diversifiable risk relative to the market portfolion. ratiosII. Part IIa. Narrative will be posted Saturday nighti. MCC problemii. Ratio analysis on financial statementsiii. Volatility Cv’sb. Bonds - Price, yield to maturity, yield to callc. Price of stock – D1/(k-g)i. CAPMd. NPV or PV or FVe. Find effective rate on a loani. Loan paymentIII. Part IIIa. Given 7, choose 5b. Possible Questionsi. 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. Dividendsiii. 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 financevi. beta, interest rates, CVvii. 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 $1000xiii. 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 structureb. Risk structure – default, illiquidity, xv. What are the components of the risk-free rate?1. Real rate + expected inflation premiumxvi. 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
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