Explain how to calculate the future value of a stream of cash flows?
> When will the annual percentage rate (APR) be the same as the effective annual rate (EAR)?
> Which of the following investments will have the highest future value at the end of three years? Assume that the effective annual rate for all investments is the same. a. You earn $3,000 at the end of three years (a total of one payment). b. You earn $1,
> Raymond Bartz is trying to choose between two equally risky annuities, each paying $5,000 per year for five years. One is an ordinary annuity, the other is an annuity due. Which of the following statements is most correct? a. The present value of the ord
> Define annuity due. Would an investment be worth more if it were an ordinary annuity or an annuity due? Explain?
> What is the difference between a perpetuity and an annuity?
> What is the key economic principle involved in calculating the present value or future value of multiple cash flows?
> If you were given a choice between investing in a savings account that paid quarterly interest and one that paid monthly interest, which one should you choose if they both offered the same stated interest rate and why?
> Explain the difference between future value and present value?
> What are the two factors to be considered in time value of money?
> Why is ROE generally much higher than ROA for banks relative to other industries?
> Define interest rate risk. How can the CFOs manage this risk?
> How would one explain a low receivables turnover ratio?
> CSB, Inc., has a beta of 1.35. If the expected market return is 14.5 percent and the risk-free rate is 5.5 percent, what is the appropriate required return of CSB (using the CAPM)?
> How does the business cycle affect the nominal interest rate and inflation rate?
> The going concern assumption of GAAP implies that the firm: a. Is going under and needs to be liquidated at historical cost. b. Will continue to operate and its assets should be recorded at historical cost. c. Will continue to operate and that all assets
> What are over-the-counter markets (OTCs), and how do they differ from organized exchanges?
> Explain what the marketability of a security is and how it is determined?
> Depreciation and amortization expenses are: a. Part of current assets on the balance sheet. b. After-tax expenses that reduce a firm’s cash flows. c. Long-term liabilities that reduce a firm’s net worth. d. Noncash expenses that cause a firm’s after-tax
> What are typically the main components of an executive compensation package?
> Which one of the following characteristics does not pertain to corporations? a. Can enter into contracts. b. Can borrow money. c. Are the easiest type of business to form. d. Can be sued. e. Can own stock in other companies.
> What are some of the things that managers do to manage a firm’s working capital?
> Define yield to maturity. Why is it important?
> What is the appropriate decision criterion for financial managers to use when selecting a capital project?
> Economic units that need to borrow money are said to be: a. Lender–savers b. Borrower–spenders c. Balanced budget keepers. d. None of the above.
> What are default risk premiums, and what do they measure?
> What are the key factors that most affect the level and shape of the yield curve?
> Describe the three most prominent bond rating systems?
> Explain why long-term bonds with zero coupons are riskier than short-term bonds that pay coupon interest?
> What is interest rate risk?
> Explain how bond yields are calculated?
> Explain conceptually how bonds are priced?
> What are zero coupon bonds, and how are they priced?
> We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a discount and that a vanilla bond with a coupon rate above the market rate of interest will sell for a premium. What kind of bond or loan will sell at its par
> A bond has a 7 percent coupon rate, a face value of $1,000, and a maturity of four years. On a time line, lay out the cash flows for the bond?
> What are the main differences between the corporate bond markets and stock markets?
> If an asset’s expected return does not plot on the line in question 2 above, what does that imply about its price?
> How is the expected return on an asset related to its systematic risk?
> Why are returns on the stock market used as a benchmark in measuring systematic risk?
> Why does the total risk of a portfolio not approach zero as the number of assets in a portfolio becomes very large?
> What does the coefficient of variation tell us, and how is it related to the Sharpe Ratio?
> What is the correct way to annualize an interest rate in financial decision making?
> What is the APR, and why are lending institutions required to disclose this rate?
> Distinguish between quoted interest rate, interest rate per period, and effective annual interest rate?
> a. Investor A holds a 10-year bond, while investor B holds an 8-year bond. If interest rate increases by 1 percent, which investor has the higher interest rate risk? Explain. b. Investor A holds a 10-year bond paying 8 percent a year, while investor B al
> Refer above to the balance sheet and income statement for Abercrombie Supply Company for the year ended June 30, 2017. Calculate the following ratios: Refer data to problem 4.2: Prepare a common-size balance sheet from the following information for Aber
> What is the difference between a growing annuity and a growing perpetuity?
> What is the annuity transformation method?
> Give two examples of perpetuities?
> How do an ordinary annuity, an annuity due, and a perpetuity differ?
> Why is it important to adjust all cash flows to a common date?
> Explain how to calculate the present value of a stream of cash flows?
> Explain why you would expect the discount factor to become smaller when based on the longer the time to payment?
> How does changing the compounding period affect the amount of interest earned on an investment?
> What is compounding, and how does it affect the future value of an investment?
> Because the conversion feature in a convertible bond is valuable to bondholders, convertible bond issues have lower coupon payments than otherwise similar bonds that are not convertible. Does this mean that a company can lower its cost of borrowing by se
> Why is a dollar today worth more than a dollar one year from now?
> What is a time line, and why is it important in financial analysis?
> Explain how the DuPont identity allows us to evaluate a firm’s performance?
> List some of the problems that financial analysts confront when analyzing financial statements?
> What are the limitations on traditional financial statement analysis?
> Explain what the SIC codes are, and discuss the pros and cons of using them in financial analysis?
> In what three ways can a financial manager choose a benchmark?
> What is the equation for ROA in the DuPont system, and how do the factors in that equation influence the ratio?
> What is the purpose of the DuPont system of analysis?
> What are the three major shortcomings of ROE?
> Why is the effective annual rate (EAR) superior to the annual percentage rate (APR) in measuring the true economic cost or return?
> List the profitability ratios discussed in this section, and explain how they differ from each other?
> List the leverage ratios discussed in this section, and explain how they are related?
> What are the efficiency ratios, and what do they measure? Why, for some firms, is the total asset turnover more important than the fixed asset turnover?
> What are common-size, or standardized, financial statements, and how are they prepared?
> Why does it make sense to standardize financial statements?
> What is the primary concern of a firm’s creditors?
> Which type of tax rate, marginal or average, should be used in analyzing the expansion of a product line, and why?
> What does it mean when a firm’s cash flow to investors is negative?
> Explain how the four financial statements are related?
> What is EBITDA, and what does it measure?
> Explain whether or not each of the following statements is correct. a. A 15-year mortgage will have larger monthly payments than a 30-year mortgage of the same amount and same interest rate. b. If an investment pays 10 percent interest compounded annuall
> What is the difference between book value and market value?
> What are some objections to the preparation of marked-to-market balance sheets?
> What types of information does a firm’s annual report contain?
> What is the realization principle, and why may it lead to a difference in the timing of when revenues are recognized on the books and cash is collected?
> Explain why interest rates follow the business cycle?
> Explain how the real rate of interest is determined?
> What is an IPO, and what role does an investment banker play in the process?
> What are some services that commercial banks provide to businesses?
> What is strong-form market efficiency? Semistrong-form market efficiency? Weak-form market efficiency?
> How and why do large business firms use money markets?
> Suppose three investments have equal lives and multiple cash flows. A high discount rate tends to favor: a. The investment with large cash flows early. b. The investment with large cash flows late. c. The investment with even cash flows. d. None of the i
> Why might a firm prefer to have a security issue underwritten by an investment banking firm?
> What critical economic role does the financial system play in the economy?
> What is a conflict of interest in a business setting?
> What are corporate raiders?
> Why is profit maximization an unsatisfactory goal for managing a firm?
> What is the fundamental determinant of an asset’s value?
> Explain why maximizing the current market price of a firm’s stock is an appropriate goal for the firm’s management?
> Identify three financial officers who typically report to the CFO and describe their duties?
> Explain why professional partnerships such as physicians’ groups organize as limited liability partnerships?
> What are some advantages and disadvantages of operating as a public corporation?
> Identify the steps involved in computing the future value when you have multiple cash flows?
> Explain why you would make an investment if the value of the expected cash flows exceeds the cost of the project?
