BUSN 5200 midterm.doc - Julia Cook BUSN 5200 Midterm 12...

This preview shows page 1 - 3 out of 6 pages.

Julia Cook BUSN 5200 Midterm 12 April 2018 Business Finance Midterm . Spring 2 2018 . OPEN BOOK AND OPEN NOTES!!! There are all short answer essay, and a few problems. You can use the calculator or your laptop if you prefer. Probably will take about an hour or two. All count the same (~4.3 each) except the last two which are bonus optional and are only worth 1 point each if you get them right, but do now count off if you do not answer them. PLEASE ANSWER IN THE SPACE PROVIDED>>>> 1. What are some of the things that make a stock go up or down… Stock prices fluctuate due to changing financial market conditions. Investors react to those changes by altering their expectation of (1) the risk associated with the investment, which affects the return that they require to purchase a stock, and (2) the firm’s future cash distributions, which are dependent upon the firm’s future growth rate. If investors require a rate of return that exceeds the return they expect the firm to generate, they will not buy the stock and they may sell the shares that they own. This will result in the price of the stock going down. If the expected rate of return is greater than expected, investors will buy the stock. This may result in the price of the stock going up. Any number of things may affect the expected rate of return – wars/conflicts, political issues, natural disasters (earthquakes/hurricanes), concerns over inflation/deflation, changes to government fiscal/monetary policy (Federal Reserve), technological changes, industry, etc. 2. Assume you deposit $5,000 each year for the next 20 years into an investment that yields 5% a year compounded annually. How much will you have at the end of 20 years? (assume payments start in one year) _ $165,329.77 _____answer 3. How much would you need today in order to withdraw $10,000 a year for the next 10 years, assuming 6% compounded annually? _$73,600.87 ____________answer 4. Discuss the difference between an annuity due, and a regular or deferred annuity. Payments under a regular, or deferred annuity, are made at the end of the period; payments under an annuity due are made at the beginning of the period. 5. What is the effect of rising interest rates on a company and thus on the value of the stock. Interest rates affect the level of economic activity, and economic activity affects corporate profits. The higher the interest rate, the lower a company’s profits.
Image of page 1
6. Fundamental analysis of a company asks you to examine the balance sheet and income statement and draw some conclusions using ratio analysis and also comparing the company to others of a similar type; i.e. auto industry. This fundamental analysis answers what question?…….. Fundamental analysis answers the question of whether or not this is a good company to buy. 7. What analytical tool tells you that the stock is “on sale” and thus is a good buy?
Image of page 2

Want to read all 6 pages?

Image of page 3

Want to read all 6 pages?

You've reached the end of your free preview.

Want to read all 6 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern