1. 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

2. 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)

3. 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

4. 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

5. 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) = D (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