FIN 431 – Exam 3 Study Guide – Old Dominion University –
Academic Year [Insert Year] – Advanced Finance Concepts and
Key Topics
The _______ is defined as the present value of all cash proceeds to the investor in the stock. -
correct answer ✔✔ intrinsic value
The goal of fundamental analysts is to find securities - correct answer ✔✔ whose intrinsic value
exceeds market price.
Investors want high plowback ratios - correct answer ✔✔ whenever ROE > k
The ______ is a common term for the market consensus value of the required return on a stock.
- correct answer ✔✔ market capitalization rate
The Gordon model - correct answer ✔✔ is valid only when g is less than k
Because the DDM requires multiple estimates, investors should - correct answer ✔✔ carefully
examine inputs to the model
All else being equal, which of the following bonds would most likely sell at the highest yield -
correct answer ✔✔ callable bond
Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest
rates remain constant, one year from now the price of this bond will be ______. - correct
answer ✔✔ lower
, The yield to maturity on a bond is _________. - correct answer ✔✔ the discount rate that will
set the present value of the payments equal to the bond price
All else being equal, a bond's duration is ________. - correct answer ✔✔ lower when the
coupon rate is higher
Duration is a concept which is useful in assessing a bond' _________. - correct answer ✔✔
interest rate risk
The duration of a 5-year zero coupon bond is _______. - correct answer ✔✔ 5.0
Bond portfolio immunization techniques balance _______ and _______risk. - correct answer
✔✔ price; reinvestment
Consider the liquidity preference theory of the term structure of interest rates. On average, one
would expect investors to require ________. - correct answer ✔✔ a higher yield on long term
bonds than short term bonds
A major advantage of zero-coupon bonds for investors is - correct answer ✔✔ no reinvestment
risk
A __________ bond is a bond where the bondholder has the right to cash in the bond before
maturity at a specific price after a specific date. - correct answer ✔✔ Puttable
Everything else equal the __________ the maturity of a bond and the __________ the coupon
the greater the sensitivity of the bond's price to interest rate changes. - correct answer ✔✔
longer; lower
The value of a call option depends on: - correct answer ✔✔ Time to expiration
Academic Year [Insert Year] – Advanced Finance Concepts and
Key Topics
The _______ is defined as the present value of all cash proceeds to the investor in the stock. -
correct answer ✔✔ intrinsic value
The goal of fundamental analysts is to find securities - correct answer ✔✔ whose intrinsic value
exceeds market price.
Investors want high plowback ratios - correct answer ✔✔ whenever ROE > k
The ______ is a common term for the market consensus value of the required return on a stock.
- correct answer ✔✔ market capitalization rate
The Gordon model - correct answer ✔✔ is valid only when g is less than k
Because the DDM requires multiple estimates, investors should - correct answer ✔✔ carefully
examine inputs to the model
All else being equal, which of the following bonds would most likely sell at the highest yield -
correct answer ✔✔ callable bond
Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest
rates remain constant, one year from now the price of this bond will be ______. - correct
answer ✔✔ lower
, The yield to maturity on a bond is _________. - correct answer ✔✔ the discount rate that will
set the present value of the payments equal to the bond price
All else being equal, a bond's duration is ________. - correct answer ✔✔ lower when the
coupon rate is higher
Duration is a concept which is useful in assessing a bond' _________. - correct answer ✔✔
interest rate risk
The duration of a 5-year zero coupon bond is _______. - correct answer ✔✔ 5.0
Bond portfolio immunization techniques balance _______ and _______risk. - correct answer
✔✔ price; reinvestment
Consider the liquidity preference theory of the term structure of interest rates. On average, one
would expect investors to require ________. - correct answer ✔✔ a higher yield on long term
bonds than short term bonds
A major advantage of zero-coupon bonds for investors is - correct answer ✔✔ no reinvestment
risk
A __________ bond is a bond where the bondholder has the right to cash in the bond before
maturity at a specific price after a specific date. - correct answer ✔✔ Puttable
Everything else equal the __________ the maturity of a bond and the __________ the coupon
the greater the sensitivity of the bond's price to interest rate changes. - correct answer ✔✔
longer; lower
The value of a call option depends on: - correct answer ✔✔ Time to expiration
