How can a change in the money supply lead to a change in the price level?
> What risk does a zero-coupon bond address?
> Briefly describe the types of risk faced by investors in domestic bonds. Also indicate the additional risks associated with nondomestic bonds.
> What is meant by the “yield to maturity” on a bond?
> Describe the process for valuing a bond.
> Briefly describe how securities are valued.
> Explain how an investor may view a stock dividend, a stock split, and a stock repurchase plan with regards to the value of his stock holdings.
> What are the major sources of long-term funds available to business corporations? Indicate their relative importance.
> 1. It is more difficult to estimate a stock’s intrinsic value than to estimate a bond’s intrinsic value because a. of credit rating differences. b. dividends can vary over time. c. the Fed’s actions don’t affect the stock market. d. stocks prices do not
> How do firms decide how much of their earnings to distribute as dividends?
> Why does dividend income growth exceed that of bond income growth over a period of time?
> Why should investors consider common stock as an investment vehicle if they have a long-term time horizon?
> Why study stocks if the net amount of stock issues is negative?
> List and briefly explain the special features usually associated with preferred stock.
> Describe some of the characteristics of common stock.
> What is a round lot of common stock?
> Why might an investor find a zero-coupon bond an attractive investment?
> Briefly describe the types of bonds that can be issued to provide bondholder security.
> How does a TIPS bond differ from the typical U.S. Treasury security?
> 1. What is the horizon risk premium? a. A bond’s time to maturity is longer than the investor’s time frame for investing in the bond. b. It equals the expected return on a short-term bond minus the expected return on a long-term bond. c. The extra return
> Describe the relationship between internal and external financing in meeting the long-term financial needs of a firm.
> Describe the process for solving for the time period in present and future value problems.
> Describe the process for solving for the interest rate in present value and future value problems.
> Briefly explain how present values and future values are related.
> What is discounting? Give an illustration.
> Briefly describe how inflation, or purchasing power, impacts stated or nominal interest rates.
> Describe the process of compounding and the meaning of compound interest.
> Explain the meaning of simple interest.
> Briefly describe what is meant by the time value of money.
> Explain the difference between the annual percentage rate and the effective annual rate.
> 1. How is a bond’s price computed? a. Compute the present value of the coupon payment and subtract the par value of the bond. b. Sum the coupons to be paid over the bond’s time to maturity and its par value. c. Compute the present value of the coupon pay
> What is usury, and how does it relate to the cost of consumer credit?
> Describe compounding or discounting that is done more often than annually.
> Describe the process for determining the size of a constant periodic payment that is necessary to fully amortize a loan such as a home mortgage.
> Briefly describe how to solve for the interest rate or the time period in annuity problems.
> Describe how the present value of an annuity can be found.
> What is an ordinary annuity? What is an annuity due?
> How can the Rule of 72 be used to determine how long it will take for an investment to double in value?
> Identify the six principles of finance.
> What are the types of marketable securities issued by the Treasury?
> What are the factors, in addition to supply-and-demand relationships, that determine market interest rates?
> 1. What is the relationship between the present value of future cash flows and the maximum price an investor should be willing to pay for a security? a. The maximum price is greater than the present value of future cash flows. b. The maximum price is equ
> Indicate the sources of demand for loanable funds, and discuss the factors that affect the demand for loanable funds.
> What are the main sources of loanable funds? Indicate and briefly discuss the factors that affect the supply of loanable funds.
> How does the loanable funds theory explain the level of interest rates?
> How did the Fed contribute to the recent historically low interest rates?
> Identify major periods of rising interest rates in U.S. history, and describe some of the underlying reasons for these interest rate movements.
> How can a default risk premium change over time?
> What is meant by default risk and a default risk premium?
> What is meant by the speculative type of inflation?
> Explain the process by which price changes may be initiated by a general change in costs.
> 1. A firm’s decision to reduce dividends a. is usually not well received by investors. b. is good news as the firm will reinvest funds to finance firm expansion. c. is an indication that the firm has too many shares of stock outstanding. d. is an indicat
> 1. The U.S. government issues which of the following money market securities? a. Treasury bills b. Commercial paper c. Negotiable certificates of deposit d. Banker’s acceptances 2. Who issues commercial paper? a. U.S. government b. Business firms
> Discuss the causes of the major periods of inflation in American history.
> What was the basis for inflation during World Wars I and II?
> Describe how interest rates may adjust to an unanticipated increase in inflation.
> Discuss the early periods of inflation based on the issue of paper money.
> Describe the process by which inflation took place before modern times.
> Identify and describe the three basic theories used to explain the term structure of interest rates.
> What is the term structure of interest rates and how is it expressed?
> Describe the process of advance refunding of the federal debt.
> What have been the recent developments in the maturity distributions of marketable interest-bearing federal debt?
> Describe any significant changes in the ownership pattern of federal debt securities in recent years.
> 1. Which of the following is true for common shareholders? a. They are the firm’s creditors. b. The firm is obligated to pay them an annual dividend. c. They can vote for candidates to the firm’s board of directors. d. The dividend is a fixed percentage
> What is the tax status of income from federal securities?
> Describe the dealer system for marketable U.S. government securities.
> Explain the mechanics of issuing Treasury bills, indicating how the price of a new issue is determined.
> What is the “interest rate,” and how is it determined?
> Define personal saving.
> Compare savings surplus and savings deficit units. Indicate which economic units are generally one type or the other.
> Briefly describe the historical role of savings in the United States.
> Describe whether the federal government has been operating with surplus or deficit budgets in recent years.
> Identify the major expense categories in the federal budget.
> Identify the various sources of revenues in the federal government.
> 1. A bond that is an unsecured obligation of the issuer—in other words, there are no specific assets pledged as collateral in case the issuer cannot repay the bondholders, is called a. an equipment trust certificate. b. an indenture. c. a first mortgage
> Identify the major components of net saving and describe their relative contributions in recent years.
> What role did individuals play in the development of the 2007-09 financial crisis?
> Identify and describe the roles of several major participants in the secondary mortgage markets.
> Briefly describe credit ratings and credit scores.
> What is meant by the term securitization? What is a mortgage-backed security?
> Identify and briefly describe the two major types of residential real estate mortgages.
> What is a mortgage? What is meant by the term mortgage markets?
> Identify and briefly describe the major securities that are originated or traded in capital securities markets.
> Describe the major components of gross domestic product.
> What are the two types of financial market securities?
> 1. Is this statement correct: Eurodollar bond are issued only in Europe and are denominated in dollars? a. Yes b. No, Eurodollars bonds can be issued in any country, except the United States. c. No, Eurodollar bonds are denominated in euros. d. No, Eurod
> Explain how financial savings generated by a business are a function of its life cycle?
> What are the life cycle stages of corporations and other business firms?
> How does each stage relate to the amount and type of individual savings?
> What are the life cycle stages of individuals?
> How do economic cycle movements affect the media or types of savings by businesses?
> Describe the principal factors that influence the level of savings by individuals.
> How and why do corporations save?
> Describe the recent levels of savings rates in the United States.
> Also, differentiate between voluntary and contractual savings.
> What is capital formation?
> 1. What does it mean to “annualize a return”? a. Computer how many dollars you receive each year b. Determine the total price change during the past year c. Determine what the compounded average annual return is on an investment. d. Take 12 monthly holdi
> Trace the effect on its accounts of a loan made by a bank that has excess reserves available from new deposits.
> Why are the expansion and contraction of deposits by the banking system possible in our financial system?
> Explain how Federal Reserve notes are supported or backed in our financial system.
> Discuss the various objectives of debt management.
