1 out of 4 : Final "Financial management" PUTUL

(This exam counts 250 points toward your grade and each section is worth 50 points)

Name ____________ Date _________

Please answer 15 of the following 25 questions in this section. Please explain all answers! Do not just put down facts. A minimum of 2-3 sentences to get credit but do not go over 5 sentences, any answers over 5 sentences will receive 0 points!

1. Define margin requirement for purchasing stock?

2. What is the key effect of having a 50% margin requirement? (it is very simple)

3. What does it mean to be long a stock bond or futures position? What is shorting a stock?

4. What is the rule of 72?

5. What is are load and no-load mutual funds?

6. Describe a basis point and how to properly express 25 basis points in decimal format?

7. Name the four arguments used in Excel for solving time value of money problems such as payment?

8. Write the formula for future value with present value format then present value with future value. Explain this relationship?

9. Describe the yield curve and why it is important?

10. What are three potential shapes of the yield curve?

11. Describe beta and how it used in finance?

12. Describe CAPM and how it used in finance?

13. Describe the primary market for stocks and the key players?

14. Describe the secondary market for stocks and the key players

15. Describe the role of investment bankers?

16. Why are U.S. government bonds considered risk free?

17. Explain a stock split and why they are done by companies?

18. What are the dogs of the Dow?

19. What are they key risks with holding a non-government (risky) bond?

20. Describe an option contract and the 5 key parameters in their valuation?

21. What is a call and put? How can they be used by investors?

22. What is behavioral finance?

23. What are some technical indicators that are broadly talked about in the popular press? (Think the main page in Yahoo/finance)

24. What is effective duration of bond?

25. What are the policy instruments available to the Fed for monetary policy?

Exam One / Essay Questions / Please answer five of the following essay questions.

Do not just state facts. Explain the interaction of the facts briefly. You should have a minimum of 2-3 paragraphs with 4-5 sentences. Be clear but brief! Any answer over 4 paragraphs with more than 6 sentences each will receive 0 credit.

1. A stock can be held in long or short position. What are the effects of each position and what are the best and worst case scenarios for being in these positions.

2. Describe behavioral finance.

3. Describe fundamental and technical analysis, compare and contrast.

4. Discuss the role that trading volume/open interest play in valuation of asset pricing? Can low trading volume influence a large block trade?

5. Discuss systematic and unsystematic risk, which can be diversified and why? Also discuss some measures of systematic risk and how they can be used to maximize returns and minimize risk.

6. Discuss the major assumptions behind SML and beta. How do these measures help in building a diversified portfolio of investments that maximizes return and minimizes risks?

7. Describe the risk return relationship and the different risk measures. Why are these important in constructing a diversified portfolio?

8. Explain the components of the dividend discount model (key drivers) and why it can be solved as perpetuity?

9. How would you describe investing in stocks and bonds to your granny?

10. Describe the key characteristics of stocks and bonds and contrast a couple of key characteristics that make them so different? How are each valued?

11. Describe preferred stock and its general characteristics. What are some of the key difference between common and preferred stocks?

12. Describe efficient markets and the three different forms of them. Do think the markets are efficient? If so to what degree and explain your reasoning.

13. What are mutual funds, describe the different types and why they differ? What is the difference between closed end mutual fund (EFT) and an open ended mutual fund? How do mutual funds benefit investors within the context of portfolio theory and diversification?

14. How might mutual funds address systematic and unsystematic risk? What type of mutual funds would you buy (load/no-load) and explain the differences.

15. How do the actions of the Federal Reserve and the economy in general effect the performance of common stock? (Be thorough!)

Exam One / Short Answers: please answer all of these questions!

1. Portfolio theory indicates that diversification can maximize _______ and minimize_________?

2. What is worth more, a dollar today or tomorrow?________

3. Discount rate brings __________money to present

4. __________is firm specific risk?

5. Beta equal to____ will move exactly like the market index?

6. _______________ Analysis uses the historic price and volume patterns to predict future stock movements.

7. ________bonds are offered by state and local governments?

8. __________preferred pays all dividends in the rear that might have been skipped.

9. When advances are higher than declines, advance/decline indicator, this is a _______sign for the stock market.

10. How many votes does a preferred stock get compared to common stock_______?

11. ______is the stated amount paid at maturity by the bond issuer?

12. A______provision allows the bond issuer to receive back the bond before maturity?

13. Point and figure charts with X/Os are used in ____________________________.

14. _________ is the rate of return for holding a bond purchased at current market price if held to maturity?

15. ADRs stand for______________ ______________ ______________?

16. The two filings that all public companies must make each year and each quarter are the_______ and __________.

17. The five determinates of an options value are ____, _____, _____, _____, ______.

18. Less required margin to buy a stock means more________ and _______ return on equity.

19. Stocks are valued by discounting all future _____________.

20. As a relative measure of price sensitivity, or the change in the change of the price, only __________________ securities have this asymmetric characteristic.

21. The two keys in valuing bonds are ____________ and __________ factor.

22. Short sales increasing is a _______________ indicator.

23. How many stocks are in the Dow jones industrial___________?

24. Selective memory describes________________?

25. Following a trend and others in financial decision making is behavior characteristic of __________ mentality.

Time Value of Money Problems /Please show your work!

(Please include a properly setup Excel spreadsheet that has a tab labeled Q1..Q5 for each problem. Also, use cell referencing as in the lectures!)

1. A stock sells for $20 per share and you purchase 100 shares. If the value of stock doubles to $40 in 1 year what would be the total return? What would be the total return if the required margin where:

a. Required margin 75%?

b. Required margin 50%?

c. Required margin 25%?

2. A person places $5,000 in a certificate of deposit that matures in 20 years and pays annual interest rate of 3%. What will be the value at maturity if the interest is reinvested in the deposit?

a. How much interest will accumulate after 20 years?

b. How much would they receive annually if they chose not to reinvest the interest and what would be the total interest paid out over 20 years?

c. Why are answers a and b different?

3. If a person invests $2,400 each year into a retirement account that pays 4%, how much will the account be worth in 30 years?

a. After 30 years they stop making additions to the account but they allow it to grow for an additional 5 years. How much would it be worth in an additional 5 years?

b. If they continued investing $2,400 each year for an additional 5 years how much would the account be worth?

4. An investor buys 500 shares of stock at $50 and the stock pays a 4% annual dividend.

a. If the investor holds the stock for 10 years and the neither the price nor the dividend change and the investor chooses to reinvest the dividends into stock what will be the value of the stock holdings and how many shares will the investor have?

b. If the investor holds the stock for 10 year and the stock price increases by 5% per year and the dividend remains the same, what will be the value of the holdings if the investor reinvests the dividends in additional stock holdings and how many shares of stock will the investor have?

c. If the investor holds the stock for 10 year and the stock price increases by 5% per year and the dividend remains the same, what will be the value of the holdings if the investor does not reinvest the dividends how many shares of stock will the investor have and how much will they be worth?

d. What is the difference between a, b, c and how significant are the additions from reinvesting?

5. A company has two bonds outstanding. The first matures after five years and it has a coupon rate of 3%. The second matures after ten years and it has a coupon rate of 5%. Interest rates are currently 7%. What is the present value of each $1,000 bond? Why are these values different?

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Finance 4501 Final Exam