HFT 4464HFT 4464

Final Exam ReviewFinal Exam Review

Fall 2008Fall 2008

Final Exam is CumulativeFinal Exam is Cumulative

• Chapter 1 through Chapter 10Chapter 1 through Chapter 10

• 50 Multiple Choice Questions50 Multiple Choice Questions– Vocabulary orientedVocabulary oriented– ProblemsProblems

Chapter 1Chapter 1

• VocabularyVocabulary– Advantages / disadvantages of Advantages / disadvantages of

organizational structuresorganizational structures– Definition of financial managementDefinition of financial management– Agency relationshipAgency relationship

Chapter 2Chapter 2

• Stock tradingStock trading– Primary marketPrimary market– Secondary marketSecondary market

• Calculate holding period returnCalculate holding period return• How to read a bond quotationHow to read a bond quotation• Advantages / DisadvantagesAdvantages / Disadvantages

– BondsBonds– Preferred stockPreferred stock– Common stockCommon stock

Chapter 3Chapter 3

• Classes of ratiosClasses of ratios

• Ratio calculationsRatio calculations– P/EP/E– EPSEPS– TurnoverTurnover– Current & Quick ratioCurrent & Quick ratio– Times interest earnedTimes interest earned

Chapter 4Chapter 4

• VocabularyVocabulary– What is riskWhat is risk– Risk aversionRisk aversion

• Expected returnExpected return

• Return varianceReturn variance

• Standard deviationStandard deviation

Chapter 5Chapter 5

• Time value of moneyTime value of money– Future value of a lump sum investmentFuture value of a lump sum investment

• Table p. 91Table p. 91

– Present value of a lump sum paymentPresent value of a lump sum payment• Table p. 93Table p. 93

– Future value of a series of payments madeFuture value of a series of payments made• Table p. 96Table p. 96

– Present value of a series of payments receivedPresent value of a series of payments received• Table p. 102Table p. 102

Chapter 6Chapter 6

• VocabularyVocabulary– IndentureIndenture– DebentureDebenture– Subordinated/UnsubordinatedSubordinated/Unsubordinated– Senior/JuniorSenior/Junior

Chapter 6Chapter 6

• Yield to maturity of a bond Yield to maturity of a bond (calculation)(calculation)

• Value of preferred stockValue of preferred stock– V = D/IV = D/I– Other formatsOther formats

Chapter 6Chapter 6

• Bond Market Rate vs. Coupon RateBond Market Rate vs. Coupon Rate– Market Rate > Coupon RateMarket Rate > Coupon Rate

•Bond Value is ? Par valueBond Value is ? Par value

– Market Rate = Coupon RateMarket Rate = Coupon Rate•Bond Value is ? Par ValueBond Value is ? Par Value

– Market Rate < Coupon RateMarket Rate < Coupon Rate•Bond Value is ? Par ValueBond Value is ? Par Value

Chapter 7Chapter 7

• VocabularyVocabulary– Common stock featuresCommon stock features– Pro & Cons of common stock financingPro & Cons of common stock financing

Chapter 8Chapter 8

• Cost of CapitalCost of Capital– Cost of debtCost of debt– Cost of preferred stockCost of preferred stock– Cost of external equityCost of external equity– Weighted Average Cost of CapitalWeighted Average Cost of Capital

Chapter 9Chapter 9

• Capital BudgetingCapital Budgeting• Calculate Net Investment for a projectCalculate Net Investment for a project• Calculate Net Cash Flows for a projectCalculate Net Cash Flows for a project• VocabularyVocabulary

– Independent / Mutually Exclusive projectsIndependent / Mutually Exclusive projects– Opportunity / Sunk CostsOpportunity / Sunk Costs– Project PurposesProject Purposes

• GrowthGrowth• Reduce costsReduce costs• Legal requirementsLegal requirements

Chapter 10Chapter 10

• Capital BudgetingCapital Budgeting– Payback periodPayback period– Discounted payback periodDiscounted payback period– Net present valueNet present value– Profitability indexProfitability index– Internal rate of returnInternal rate of return

SummarySummary

• Scantron required !!!Scantron required !!!

• Present / future tables providedPresent / future tables provided

• Bring a calculator !!! (And maybe a Bring a calculator !!! (And maybe a spare?)spare?)

• Scratch paper providedScratch paper provided

• Formula sheet will be provided for Formula sheet will be provided for calculationscalculations