The difference between Value and Price MGT 326 Test 1 Review Question Types: Multiple choice, True/false w/ explanation, Short answer, Short essay, Fill-in-the-blank Problems: Multiple choice answer; must show all work / calculator inputs & cash flow diagrams Overview of Finance The difference between Value and Price Return, ROR, Yield, Rate of Profit [Profit/Investment] Chapter 5 Explain why lenders charge interest Define the components of interest rates (r = r*+IP+DRP+LP+MRP) Know what a term structure of interest rates is Define an interest rate Yield Curve how to read it what influences the shape of the yield curve what the shape tells us about future interest rates Make borrowing decisions using yield curve information Explain the Opportunity Cost of Capital & why it’s important Chapters 11&12 Explain the Concept of Risk Aversion and Its Effects on Security Valuation and Return Explain Coefficient of Variation and Use It To Make An Investment Decision Components of Risk Explain Systematic Risk and Unsystematic Risk Describe the Causes of Systematic Risk and Unsystematic Risk Describe Diversification and How It Reduces the Riskiness of a Portfolio Describe the Capital Asset Pricing Model Explain What Beta Is

Future value (definition) Present value (definition) MGT 326 Test 1 Review Chapter 4 Concept Questions Future value (definition) Present value (definition) Compounding (definition) Discounting (definition) Explain Effective Annual Rate Use Effective Annual Rate To Make a Borrowing or Investing Decision The #1, all-important, never-to-be-forgotten process used to determine the theoretical/fair market value of any financial asset rnominal, rperiodic Types of Problems (work them any way you know how) Find FV Find PV Find r Find n Annuities (ordinary & due) Find PMT Un-even cash flows Perpetuities EAR Do all of the above using other-than-annual compounding Perform All of the Above with Fractional (non-integer) Time Periods Perform All of the Above in Cases Where Compounding Periods Per Year Aren't Equal To Payments Per Year Be able to solve for PV or FV of an annuity without the financial functions on your calculator (i.e. do the math)

MGT 326 Test 1 Review Formulas   ROR = Profit/Investment = (Sales Price –COGS)/COGS = (Sales Price – FMV)/FMV or (End Price – Begin Price) / Begin Price = (New – Old) / Old Cost of Money Nominal Interest Rate = r = r* + IP + DRP + LP + MRP Time Value of Money Discrete Compounding rperiodic = rnominal/m n = m x T FV = PV(1 + rnominal/m)n PV = FV / (1 + rnominal/m)n EAR = (1 + rnominal/m)m – 1 PVperpetuity = PMT / rperiodic Continuous Compounding FV = PVerT PV = FV / erT EAR = er – 1