TCU Finance Exit Exam – Questions With
Complete Solutions
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Terms in this set (65)
Calculate the present value or future o PV = FV / (1+i)^n
value of a lump (single) sum. o FV = PV(1+i)^n
Find number of periods or interest Calculator time(see above relationships)
rate for lump sum cash flow if given
PV and FV
Calculate PV or FV of an annuity and Remember to set TVM: PMT:end/beginning
of an annuity due If solving for FV, set PV to 0
If solving for PV, set FV to 0
PMT=annual payment
FV=0 or solve for
i=market rate
PV=0 or solve for
,Find PMT, interest rate, or number of Remember to adjust for non-annual payments
payments in annuity or annuity due
problem with annual or non-annual
payments
Find the PV, PMT, or interest rate for a Perpetuity: PV=PMT/interest rate
perpetuity
Calculate the effective annual rate for o ((1+ i/n)^n) - 1
an interest rate compounded more o I = stated annual interest rate
than one time per year o N = number of periods
Prepare a loan amortization table Monthly payment: Calculator: solve for PMT using
PV=principal and FV=0
Pay attention to annuity or annuity due
For each payment, multiply interest rate times
remaining principle to determine interest portion of
payment. The remaining amount goes towards
principle.
Understand the effect of time and • The further out in time, the less the PV becomes
interest rate on present and future
values of a cash flow • The higher the discount rate, the lower the PV
becomes
Calculate the price of a bond o PV of interest payments
-Find annual coupon rate, or semiannual
-Find semiannual discount rate, or the bonds with
similar maturities
-Multiple time to maturity by 2
o PV of principal amount
Calculate the yield to maturity of a o The yield to maturity is the discount rate that
bond equates the bond's current price with its stream of
promised future cash flows.
o On calculator, solve for I/Y, and then multiply by
two if semiannual to get annual yield
, Understand the impact of time to o A longer term bond needs to have a higher
maturity on changes in bond prices interest rate to be valuable due to more risk; also, as
as yield changes (check) a bond approaches maturity, its price will converge
with its face value
o When interest rates rise, the price of outstanding
bonds fall. When interest rates fall, the price of
outstanding bonds rise
*A change in yield produces a bigger change in a
10bond vs a 5 year note
Explain bond duration o The weighted average period of time before the
price of a bond is repaid by its cash flows. Zero-
coupon bond duration=its time to maturity.
o Importance is that it predicts how sharply the
market price of a bond will change as a result of
changes in interest rates(or other factors of
volatility)
Calculate the price of preferred stock The price of preferred stock = preferred dividend /
required return on the stock
Calculate the expected return of expected return = preferred dividend/price of the
preferred stock (check this) preferred stock
Calculate the value of common stock Dividend discount model: Value of stock = Dividend
using the dividend discount model, per share / (Discount rate - Dividend growth rate)
earnings model, and firm's free cash
flows. (check) Earnings model:
Free cash flows:
Calculate the expected return of - (Return x Percentage of possibility)
common stock - The amount one would anticipate receiving on an
investment that has various known or expected rates
of return. For example, if one invested in a stock that
had a 50% chance of producing a 10% profit and a
50% chance of producing a 5% loss, the expected
return would be 2.5% (0.5 x 0.1 + 0.5 x -0.05).
Complete Solutions
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Match Blocks Charms NEW
Terms in this set (65)
Calculate the present value or future o PV = FV / (1+i)^n
value of a lump (single) sum. o FV = PV(1+i)^n
Find number of periods or interest Calculator time(see above relationships)
rate for lump sum cash flow if given
PV and FV
Calculate PV or FV of an annuity and Remember to set TVM: PMT:end/beginning
of an annuity due If solving for FV, set PV to 0
If solving for PV, set FV to 0
PMT=annual payment
FV=0 or solve for
i=market rate
PV=0 or solve for
,Find PMT, interest rate, or number of Remember to adjust for non-annual payments
payments in annuity or annuity due
problem with annual or non-annual
payments
Find the PV, PMT, or interest rate for a Perpetuity: PV=PMT/interest rate
perpetuity
Calculate the effective annual rate for o ((1+ i/n)^n) - 1
an interest rate compounded more o I = stated annual interest rate
than one time per year o N = number of periods
Prepare a loan amortization table Monthly payment: Calculator: solve for PMT using
PV=principal and FV=0
Pay attention to annuity or annuity due
For each payment, multiply interest rate times
remaining principle to determine interest portion of
payment. The remaining amount goes towards
principle.
Understand the effect of time and • The further out in time, the less the PV becomes
interest rate on present and future
values of a cash flow • The higher the discount rate, the lower the PV
becomes
Calculate the price of a bond o PV of interest payments
-Find annual coupon rate, or semiannual
-Find semiannual discount rate, or the bonds with
similar maturities
-Multiple time to maturity by 2
o PV of principal amount
Calculate the yield to maturity of a o The yield to maturity is the discount rate that
bond equates the bond's current price with its stream of
promised future cash flows.
o On calculator, solve for I/Y, and then multiply by
two if semiannual to get annual yield
, Understand the impact of time to o A longer term bond needs to have a higher
maturity on changes in bond prices interest rate to be valuable due to more risk; also, as
as yield changes (check) a bond approaches maturity, its price will converge
with its face value
o When interest rates rise, the price of outstanding
bonds fall. When interest rates fall, the price of
outstanding bonds rise
*A change in yield produces a bigger change in a
10bond vs a 5 year note
Explain bond duration o The weighted average period of time before the
price of a bond is repaid by its cash flows. Zero-
coupon bond duration=its time to maturity.
o Importance is that it predicts how sharply the
market price of a bond will change as a result of
changes in interest rates(or other factors of
volatility)
Calculate the price of preferred stock The price of preferred stock = preferred dividend /
required return on the stock
Calculate the expected return of expected return = preferred dividend/price of the
preferred stock (check this) preferred stock
Calculate the value of common stock Dividend discount model: Value of stock = Dividend
using the dividend discount model, per share / (Discount rate - Dividend growth rate)
earnings model, and firm's free cash
flows. (check) Earnings model:
Free cash flows:
Calculate the expected return of - (Return x Percentage of possibility)
common stock - The amount one would anticipate receiving on an
investment that has various known or expected rates
of return. For example, if one invested in a stock that
had a 50% chance of producing a 10% profit and a
50% chance of producing a 5% loss, the expected
return would be 2.5% (0.5 x 0.1 + 0.5 x -0.05).
