Final Exam Study guide_1

Final Exam Study guide_1 - Arizona State University FIN...

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Arizona State University FIN 300- Fundamentals of Finance Final Exam Study Guide I. Time Value of Money (Chapter 5) Understand and know how to calculate a constant payment (e.g. a monthly car payment) and construct the corresponding simple loan amortization table. II. Interest Rates (Chapter 6) Understand the intuition behind the equation presented for market rates of interest and be able to identify the various components: r = r* + IP + DRP + LP + MRP What is the nominal risk-free rate of interest? How does the nominal risk free rate of interest differ from the real risk-free rate of interest? If given the nominal risk-free rate and expected average inflation, be able to calculate the real risk-free rate. Based on the formula for market rates of interest, be able to explain why a junk bond, e.g., a bond of a firm with a very low credit rating, would likely have a much larger yield to maturity than that of a U.S. Treasury Bond. Understand how a T-bond yield and a Corporate bond yield are calculated as well as the components that make up their formula. Corporate bond yield = r* + IP + MRP + DRP + LP. T-Bond yield = r* + IP + MRP Understand the relationship between long-term and short-term is known as the term structure of interest rates. Be able to know the difference between an Upward vs Downward sloping yield curve. III.
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Final Exam Study guide_1 - Arizona State University FIN...

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