Fin303FinalStudy GuideS23

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FIN 303
Oct 16, 2023
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Fin303 Final Exam Study Guide Chapters 7-10, 13 Yanbo Jin Chapters Learning Objectives Chapter 7 Risk and Return 1. Explain the relation between risk and return 2. Describe the two components of a total holding period return, and calculate this return for an asset 3. Explain what an expected return is and calculate the expected return for an asset 4. Explain what the standard deviation of returns is and why it is very useful in finance, and calculate it for an asset 5. Explain what an arithmetic average return is and what a geometric return is, and calculate these returns for an asset 6. Explain the concept of diversification 7. Discuss which type of risk matters to investors and why 8. Describe what the Capital Asset Pricing Model (CAPM) tells us and how to use it to evaluate whether the expected return of an asset is sufficient to compensate an investor for the risks associated with that asset Chapter 8 Bond Valuation & the Structure of Interest Rates 1. Describe the market for corporate bonds and three types of corporate bonds 2. Explain how to calculate the value of a bond and why bond prices vary negatively with interest rate movements 3. Distinguish between a bond's coupon rate, yield to maturity, and effective annual yield 4. Explain why investors in bonds are subject to interest rate risk and why it is important to understand the bond theorems Chapter 9 Stock Valuation 2. Explain why many financial analysts treat preferred stock as a special type of bond rather than as an equity security 3. Describe how the general dividend-valuation model values a share of stock 4. Discuss the assumptions that are necessary to make the general dividend- valuation model easier to use, and use the model to compute the value of a firm's stock 5. Explain why g must be less than R in the constant-growth dividend model 6. Explain how valuing preferred stock with a stated maturity differs from valuing preferred stock with no maturity, and calculate the price of a share of preferred stock under both conditions Fin303 Final Study Guide Spring, 2023 Page 1 of 2
Chapters Learning Objectives Chapter 10 Fundamentals of Capital Budgeting 2. Explain the benefits of using the net present value (NPV) method to analyze capital expenditure decisions and calculate the NPV for a capital project 3. Describe the strengths and weaknesses of the payback period as a capital expenditure decision-making tool and compute the payback period for a capital project 5. Compute the internal rate of return (IRR) for a capital project and discuss the conditions under which the IRR technique and the NPV technique produce different results Chapter 13 The Cost of Capital 1. Explain what the weighted average cost of capital for a firm is and why it is often used as a discount rate to evaluate projects. 2. Calculate the cost of debt for a firm. 3. Calculate the cost of common stock and the cost of preferred stock for a firm. 4. Calculate the weighted average cost of capital for a firm. Fin303 Final Study Guide Spring, 2023 Page 2 of 2
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