FIN 205 Final Exam Review | Actual
study set | Questions with correct
Answers
Weak form efficiency - ANSW-market prices reflect all historical information
price of stock reflect currently available mkt data
EAC (Equivalent Annual Cost) - ANSW-present value/Annuity factor
semi strong form efficiency - ANSW-Market prices reflect all publicly available information
price of stock is quickly adjusted based on the new information
strong form efficiency - ANSW-market prices reflect all information - public and private
can't beat!!!
CAPM (Capital Asset Pricing Model) - ANSW-given formula -->
R(i) = r(f) + B( r(m) - r(f) )
capital asset expected return = risk free rate + beta(return of market - risk free rate)
for the NPV rule what is relevant? - ANSW-ONLY CASH FLOWS
- MAKE SURE TO include:
-- capital expenses (record capital expenditures when it occurs, add back depreciation and then subtract
capital expenditure)
-- working capital: current assets - current liabilities
-- include opportunity costs
-- don't use sunk costs (already incurred, cannot be recovered)
YTM means return!!
relationship between YTM and bond prices --> - ANSW-as bond price increases, YTM/return decreases
as bond price decreases, YTM/return increases
relationship between interest rates and bond prices - ANSW-INVERSE!
if the interest rates go down, BP will go up
if the interest rates go up, BP will go down
is something with a high YTM or return and a low bond price risky? - ANSW-yes
riskier if the YTM is higher - also means higher returns
WHEN COMPARING YTM WITH CPN RATE.... - ANSW-if the return/YTM is less than cpn rate --> PREMIUM
if the return/YTM is more than cpn rate --> DISCOUNT
working capital - ANSW-current assets - current liabilities
study set | Questions with correct
Answers
Weak form efficiency - ANSW-market prices reflect all historical information
price of stock reflect currently available mkt data
EAC (Equivalent Annual Cost) - ANSW-present value/Annuity factor
semi strong form efficiency - ANSW-Market prices reflect all publicly available information
price of stock is quickly adjusted based on the new information
strong form efficiency - ANSW-market prices reflect all information - public and private
can't beat!!!
CAPM (Capital Asset Pricing Model) - ANSW-given formula -->
R(i) = r(f) + B( r(m) - r(f) )
capital asset expected return = risk free rate + beta(return of market - risk free rate)
for the NPV rule what is relevant? - ANSW-ONLY CASH FLOWS
- MAKE SURE TO include:
-- capital expenses (record capital expenditures when it occurs, add back depreciation and then subtract
capital expenditure)
-- working capital: current assets - current liabilities
-- include opportunity costs
-- don't use sunk costs (already incurred, cannot be recovered)
YTM means return!!
relationship between YTM and bond prices --> - ANSW-as bond price increases, YTM/return decreases
as bond price decreases, YTM/return increases
relationship between interest rates and bond prices - ANSW-INVERSE!
if the interest rates go down, BP will go up
if the interest rates go up, BP will go down
is something with a high YTM or return and a low bond price risky? - ANSW-yes
riskier if the YTM is higher - also means higher returns
WHEN COMPARING YTM WITH CPN RATE.... - ANSW-if the return/YTM is less than cpn rate --> PREMIUM
if the return/YTM is more than cpn rate --> DISCOUNT
working capital - ANSW-current assets - current liabilities
