finance 455 exam 1 Questions and Answers
Terms in this set (82)
When the YTM increases, what happens to the price? goes down
When the YTM decreases, what happens to the price? goes up
What happens to a premium bond over its lifetime? the price will decrease and approach par value
What happens to a discount bond over its lifetime? the price will increase and approach par value
, what is the formula for a constant dividend growth P=d1/(r-g)
model? (horizon value)
What is CAPM aiming to find? the investors required rate of return on a stock
What is the security market line formula? rf + B(EMR - rf)
What is the formula for market risk premium? (MRP) EMR - rf
Dividend Yield Formula D1/P0
Capital Gain Yield (P1-P0)/P0
Total return formula for CAPM dividend yield + capital gain yield
If the current growth of the stocks dividends are greater greater than g
than g, the capital gains yield is...
How to use the P/E (price to earnings) ratio method to average P/E ratio of comparable firms x estimated earnings
estimate stock price?
What is entity value? the market value of equity plus the value of debt
How to calculate the value of a preferred stock using dividend / r
CAPM?
What is the amount of money available to be distributed free cash flow (FCF)
to all investors, including stockholders, bondholders, and
preferred stock holders?
FCF formula FCF = NOPAT - Investment in Total Operating Capital
NOPAT formula NOPAT = EBIT (1 - T)
Total Operating Capital formula Total Operating Capital = Operating Assets - Operating Liabilities
• Investment in Total Operating Capital formula the change in Total Operating Capital from the previous year to the current year
What are the five uses of FCF? Pay interest on debt, Pay principal on debt, Pay dividends, Buy back stock, Buy
nonoperating assets
What are the assets needed to support operations—some operating assets
are short-term (current), some are long-term?
What is the main thing that operating assets DOES NOT marketable securities
include?
Terms in this set (82)
When the YTM increases, what happens to the price? goes down
When the YTM decreases, what happens to the price? goes up
What happens to a premium bond over its lifetime? the price will decrease and approach par value
What happens to a discount bond over its lifetime? the price will increase and approach par value
, what is the formula for a constant dividend growth P=d1/(r-g)
model? (horizon value)
What is CAPM aiming to find? the investors required rate of return on a stock
What is the security market line formula? rf + B(EMR - rf)
What is the formula for market risk premium? (MRP) EMR - rf
Dividend Yield Formula D1/P0
Capital Gain Yield (P1-P0)/P0
Total return formula for CAPM dividend yield + capital gain yield
If the current growth of the stocks dividends are greater greater than g
than g, the capital gains yield is...
How to use the P/E (price to earnings) ratio method to average P/E ratio of comparable firms x estimated earnings
estimate stock price?
What is entity value? the market value of equity plus the value of debt
How to calculate the value of a preferred stock using dividend / r
CAPM?
What is the amount of money available to be distributed free cash flow (FCF)
to all investors, including stockholders, bondholders, and
preferred stock holders?
FCF formula FCF = NOPAT - Investment in Total Operating Capital
NOPAT formula NOPAT = EBIT (1 - T)
Total Operating Capital formula Total Operating Capital = Operating Assets - Operating Liabilities
• Investment in Total Operating Capital formula the change in Total Operating Capital from the previous year to the current year
What are the five uses of FCF? Pay interest on debt, Pay principal on debt, Pay dividends, Buy back stock, Buy
nonoperating assets
What are the assets needed to support operations—some operating assets
are short-term (current), some are long-term?
What is the main thing that operating assets DOES NOT marketable securities
include?
