Review session _1 - solutions

Review session _1 - solutions - Review session #1 -...

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Review session #1 - Solutions Fall 2008 Prof. Isabelle Bajeux-Besnainou Chapter 2 FV of a lump sum i . FV of a lump sum ii . Interest rate on a simple lump sum investment iii . Number of periods iv . PV of an ordinary annuity v . Payments on an ordinary annuity vi . FV of a lump sum, semiannually vii . Amortization viii . Monthly loan payments ix . FV of an annuity x . PV of an uneven CF stream xi . Required annual rate of return xii . Chapter 3 Balance sheet: market value vs. book value xiii .
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Balance sheet: net operating working capital xiv . Income statement: EBIT xv . Income statement: free cash flow xvi . Net income xvii . Depreciation and amortization expense xviii . Interest expense xix . Free cash flow xx . Chapter 4 Return on total assets (ROA) xxi . Return on equity (ROE) xxii . Price/earnings ratio (P/E) xxiii . Debt ratio xxiv . Chapter 5 Financial markets xxv . Financial markets xxvi .
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Money markets xxvii . Financial transactions xxviii . Efficient markets hypothesis xxix . Chapter 6 Inflation and interest rates; MRP exist; 1-year xxx . Default risk premium xxxi . Estimating the 1-year forward rate xxxii . Real risk-free rate, r* xxxiii . Expected interest rates xxxiv . Expectations theory xxxv . Expectations theory xxxvi . Chapter 7 Bond valuation xxxvii . Yield to maturity xxxviii . Callable bond xxxix . Effect of interest rates on bond prices xl .
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Bond concepts xli . Callable bond xlii . Bond valuation - semiannual coupons xliii . Yield to call xliv . Current yield xlv . Bond valuation xlvi . Bond valuation - semiannual coupons xlvii . Determining the coupon rate xlviii . Chapter 8 Expected returns xlix . Portfolio beta l . Calculating betas li . CAPM lii . Market risk premium liii . Standard deviation liv . Beta coefficient lv . Portfolio risk and return lvi . CAPM and required return lvii . Risk analysis and portfolio diversification lviii .
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Portfolio risk and return lix .
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i. FV of a lump sum Answer: a EASY N 5 I/YR 10% PV -$100 PMT $0 FV $161.05 ii. FV of a lump sum Answer: c EASY N 3 I/YR 4% PV -$2,000 PMT $0 FV $2,249.73 iii. Interest rate on a simple lump sum investment Answer: e EASY N 10 I/YR 5.00% PV -$613.81 PMT $0 FV $1,000.00 iv. Number of periods Answer: e EASY N 14.21 I/YR 5.00% PV -$100.00 PMT $0 FV $200.00 v. PV of an ordinary annuity Answer: c EASY N 5 I/YR 6.00% PV $4,212.36 PMT -$1,000 FV $0.00 vi. Payments on an ordinary annuity Answer: e EASY N 20 I/YR 8.00% PV -$500,000 PMT $50,926.10 FV $0.00 vii. FV of a lump sum, semiannually Answer: e EASY/MEDIUM
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Years 3 N = Periods = years x periods/yr = 6 Periods/Yr 2 PMT $0 Nom. I/YR 8.00% I/Period = Nom. I/Periods per year = 4.00% PV $2,000 FV $2,530.64 Could be found using a calculator, the equation, or Excel. Note that we must first convert to periods and rate per period. viii. Amortization
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Review session _1 - solutions - Review session #1 -...

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