1. FIN220 2nd Midterm Review

2. Chapter 7 Bonds & Their Valuation
Who issues bonds?
Treasury bonds
Corporate bonds
Foreign bonds

3. Chapter 7 Bonds & Their Valuation
Key characteristics of bonds
Par value
Coupon interest rates (Fixed-rate, Floating-rate, Zero-coupon)
Maturity date
Other features
Convertible bonds, Warrants, Putable bonds, Income bond, Indexed bond, Call provisions & Sinking funds
Bond valuation
Discount bond Vs. Premium bond
Bond yields
Current Yield , Capital Gain Yield & Yield to maturity (YTM)
Yield to call (YTC)

4. Chapter 7 Bonds & Their Valuation
Changes in bond values over time
Bonds with semiannual coupons
Assessing a bond’s riskiness
Price (Interest rate) risk
Reinvestment rate risk
Default risk
Various type of corporate bonds
Mortgage bonds, Indenture, Debenture & Subordinated debenture
Bond ratings
Bond rating criteria
Investment-grade bond Vs. Junk bond
Bankruptcy & reorganization

5. Chapter 8 Risks & Rates of Return
What is Risk?
Stand-alone Risk
Measuring Stand-Alone Risk: the Standard Deviation & the Coefficient of Variation
Portfolio Risk
Diversifiable Risk
Market Risk
Expected Rate of Return
Risk Aversion & Required Returns
Risk premium

6. Risks & Rates of Return Risk in a Portfolio Context: the CAPM
Expected Portfolio Returns
Correlation
The Beta Coefficient (Avg. Beta or Market Beta = 1)
Relationship between Risk & Rates of Return
Security Market Line Equation
The Impact of Expected Inflation
Changes in Risk Aversion (Market Risk Premium)
Changes in a Stock’s Beta Coefficient (Portfolio Beta)

7. Chapter 9: Stocks & Their Valuation
Facts about common stock?
Legal Rights & Privileges of Common Stockholders
Control of the Firm
Stock Price vs Intrinsic Value (Undervalue Vs. Overvalued)
Why Do Investors & Companies Care About Intrinsic Value?
The Discounted Dividend Model (DDM)
Growth Rate, g (Supernormal, normal, zero & negative growth)
Required Rate of Return VS. Expected Rate of Return
Total return (rs )= Dividend Yield + Capital Gains Yield
Expected Dividends and price as the Basis for Stock Value

8. Stocks & Their Valuation
Constant Growth Stocks
Dividends vs Growth
Required Conditions for the Constant Growth Model
Valuing Nonconstant Growth Stocks
Terminal Date & Terminal Value (Horizon value)
Valuing the Entire Corporation
The Corporate Valuation Model
Comparing the Corporate Valuation & Discounted Dividend Models
Firm Multiples Method
Preferred Stock