The difference between Value and Price MGT 326 Fall 2017 Intersession Exam 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 Concept Questions Explain why lenders charge interest Define the components of interest rates (r = r*+IP+DRP+LP+MRP) 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 and why it’s important

Chapter 4 Concept Questions Explain Effective Annual Rate MGT 326 Fall 2017 Intersession Exam Review Chapter 4 Concept Questions 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 Explain why it is true 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 the above without the financial functions on your calculator (i.e. do the math)

Chapter 7: Stock Valuation MGT 326 Fall 2017 Intersession Exam Review Chapter 6: Bonds Concept Questions: Explain Selling At Par, At a Discount & At a Premium Understand Bond Price Behavior wrt Changes in Market Interest Rates Understand Bond Price Sensitivity wrt Maturity Make Bond Investing Decision Using a Yield Curve Information Types of Problems: Find retail price of a bond Calculator Financial Functions (at coupon) (no date given) Bond Worksheet (between coupons) (date given) Given 2 bonds, which is most fairly priced Find bond YTM Find holding period return / total yield for bonds Chapter 7: Stock Valuation Understand Fundamental Stock Concepts, Terms & Characteristics Stock valuation concept: zero dividend growth, constant dividend growth, non-constant dividend growth (wrt corporate life cycle) Explain How Firms Meet the Cost of Stock Consequences of Failure to Meet the Cost of Debt vs. Failure to Meet the Cost of Stock Find fair market value/theoretical value of a non-constant dividend growth Stock Chapter 13: Cost of Capital Explain why WACC is considered a firm’s required ROR

Chapter 8: Investment Decision Rules MGT 326 Fall 2017 Intersession Exam Review Chapter 8: Investment Decision Rules Concept Questions: Disadvantage of IRR technique vs. NPV reinvestment rate assumption unconventional cash flows Why the WACC is used as the discount rate in NPV computations: Why WACC is considered a project’s required ROR Types of Problems: Discounted payback period, NPV, IRR Find NPV of projects with unequal lives Use Risk Adjusted Discount Rate in NPV Calculation Chapters 11&12 Components of Risk Explain Systematic Risk and Unsystematic Risk Escribe the Causes of Systematic Risk and Unsystematic Risk Describe Diversification and How It Reduces the Riskiness of a Portfolio Explain the Concept of Risk Aversion and Its Effects on Security Valuation and Return

Formulas MGT 326 Fall 2017 Intersession Exam Review   ROR = Profit/Investment = (Sales Price –COGS)/COGS = (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 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 Bonds Cpn = FV(rCPN/m) Capital Gains Yield = ROR Bond Holding Period Return/Total Yield = EARCoupon + Capital Gains Yield Real ROR = [(1 + rnominal )/(1 + Inflation)] - 1 Stocks P0 = D/ rs (zero growth dividend) P0 = D0(1 + g) = D1 (constant growth dividend) rs – g rs - g P0 = PV0(CFst1-tx) + PV0(PVt=x, CFs 4-infinity) (non-constant growth dividend) rs = D0/P-1 + (P0 - P-1)/P-1 rs = D1/P0 + g OR D1/P0 + (P1 - P0)/P0 P1 = P0(1 + g/m)n OR Vhorizon Coefficient of Variation s /E(r) ≈ S/rrealized CAPM