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 riskfree rate of interest?
How does the nominal risk free
rate of interest differ from the real riskfree rate of interest?
If given the
nominal riskfree rate and expected average inflation, be able to calculate the
real riskfree 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 Tbond 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.
TBond yield = r*
+ IP
+ MRP
•
Understand the relationship between longterm and shortterm 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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 Spring '08
 Olander
 Finance, Interest Rates, Time Value Of Money, Net Present Value, Internal rate of return, corporate bond yield

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