1. 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

2. 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)

3. 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