School

California State University, Northridge **We aren't endorsed by this school

Course

FIN 303

Subject

Finance

Date

Oct 16, 2023

Pages

2

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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
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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
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