Principles of Investing FIN 330 Phase 2 Exam Study Guide Multiple Choice, True/False

Company analysis is conducted in a Top to Down manner: from the macro to micro. Chief among the macro factors is Fed Policy. Fed Policy tends to manage the impact of economic and business cycles. Especially as they impact employment and personal income. A.What is fiscal policy? Who controls Fiscal Policy? B.What is monetary policy? Who makes decisions regarding monetary policy? C.In what 3 ways does the Fed influence economic activity? D.Why do investors look at the Fed’s Beige Book? Chapter 5: Economic Activity

Stock prices are influenced by industry effects.Industries undergo life cycles very similar to product life cycles. Sensitivity to where an industry is going, relative to their life cycles, can be important in establishing a range of values. A.Why do companies pay stock dividends? B.Why are monopolies not common in the United States? C.What are the five competitive forces that affect prices and profitability in an industry? D.What is meant by the concept of rotational investing? Chapter 6: Industry Analysis

The basic process for valuation of any business is to look at its revenue stream (sales) and how well it converts sales into profits. There are several competing models for valuing stock. A.How do earnings affect stock prices? B.What limitation is imposed on the Gordon Growth Model with regard to k e and g? C.What is the purpose of Beta (  ) in the Capital Asset Pricing Model? D.How do we define the risk premium in the CAPM? E.What is the main reason for including the Riskless Asset in the CAPM ? Chapter 7: Valuation of the Firm

The objective of financial statement analysis (FSA) is to direct managerial attention to areas of concern in corporate financial performance. FSA does not provide solutions to corporate problems nor does it consider all the possible interactions. FA is first and always an analytical tool. A.What ratios are likely to be of greatest interest to the banker or trade creditor? To the bondholder? B.What is the primary objective of the DuPont System of Financial Analysis? C.How does debt impact DuPont analysis? Asset investment? Net Profit Margins? D.What types of information are contained in the balance sheet? (LHS versus RHS) E.What information is contained in the Income Statement? F.What information is contained in the Statement of Cash Flows? Chapter 8: Financial Statement Analysis

Chapters 11 & 12: Bonds A.What are the major types of bonds? B.What is the purpose of the indenture agreement? C.What do we mean by the following: 1.Serial Redemption 2.Sinking Funds 3.Callable bond D.Why are municipal bonds popular with certain investors? E.How do we measure Bond Yields? 1.YTM, Current Yield, Coupon Yield, Yield-to-First Call F.How are interest rates and bonds prices related?

Chapter 13: Convertibles A.What makes convertible bonds attractive investments? B.Define the following terms: 1.Conversion Price 2.Conversion Ratio 3.Conversion Value 4.Conversion Premium C.How are warrants used? 1.By the issuer? 2.By the investor? 3.When does a warrant have intrinsic value