FIN 300 Test 3 Study Guide-1.docx - FIN 300 spring 2020 study Guide Test 3 This is a study guide ONLY and is to assist you with test preparation It does

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Unformatted text preview: FIN 300 spring 2020 - study Guide - Test # 3 This is a study guide ONLY and is to assist you with test preparation. It does not take the place of reading textbook chapters and items posted on Canvas or attending class (including online classes). It should cover most of the material on the test. However, I reserve the right to ask questions from all material covered in class, assigned as reading, Canvas items, homework and inclass assignments. It'll be multiple choice questions, with general math. Chapter 9 -Stock Valuation -Text book and Power Point Which group owns the largest share (percentage) of corporate equity? What % do they hold according to our textbook and Power Point? What are the two next largest groups of holders? Why do many analysts treat preferred stock as a type of bond rather than an equity security? "It is because of their strong similarity to bonds that many financial analysts treat preferred stock which are not true perpetuities as a form of debt rather than equity." Secondary market — What is it? Z Broker v. Dealer. What are they and what are the differences? Stock Market listings. What are they and what information do they generally show? Stock Market Exchanges. What are they and what are the main exchanges? "The role of the NYSE, NASDAQ, and other secondary markets is to bring together buyers and sellers." Equity Securities — Common Stock & Preferred Stock. What are they and their differences? Valuation of Equity Securities — Just concepts here, no math EXCEPT for the Current Yield and Price/Earnings Ratio which are in your Equity Notes handout (See below) One Period, Perpetuity, Zero Growth, Constant Growth models. Just the concepts of these, no formulas or math for these on the test. Describe how the general dividend-valuation model values a share of stock. Textbook, section 9.2, page 9-11. Stock price = PV (All expected dividends) Small Cap — (posted on Canvas in the Power Points, News and Other Articles section) Market capitalization — Definition. the value of a company that is traded on the stock market, calculated by multiplying the total number of shares by the present share price. Market capitalization, commonly called market cap, is the market value of a publicly traded company's outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding. What is the $ amount and main differences between Large cap, Mid cap and Small cap? What challenges do small cap stockholders face? Liquidity / Marketability What is an Emerging Market? Alternative investments. Define and give some examples. Equity Securities Notes — (Posted on Canvas in the Power Points, News and Other Articles section) What is a security? Total Capitalization. Common Stockholders rights (This expands on what is in our textbook). Common stock classifications and values. The order of payout in the event of a company liquidating. Types of orders — Market, Limit, Stop, Day, Good till cancelled Stock Splits — Forward and reverse. The benefits (and challenges) of owning stock. Current yield and how to calculate it. Price / Earnings ratio and how to calculate it. Monetary Policy and 3 Main Tools of the Federal Reserve (See the notes at the end of this study guide) What is Monetary Policy?- Monetary policy consists of the process of drafting, announcing, and implementing the plan of actions taken by the Federal Reserve Bank (the Fed) which controls the quantity of money in our economy and the channels by which new money is supplied. Monetary policy consists of management of money supply and interest rates, aimed at achieving objectives such as controlling inflation consumption, growth, and liquidity. These are achieved by actions such as modifying the interest rate, buying or selling government securities, and changing the amount of money banks are required to maintain as reserves. The discount rate (also called the primary credit lending rate); the Reserve Requirement; Open Market Operations. How do they affect the economy? First is the buying and selling of short-term bonds on the open market using newly created bank reserves. This is known as open market operations. Open market operations traditionally target short term interest rates. The Fed adds money into the banking system by buying assets (or removes in by selling assets), and banks respond by loaning the money more easily at lower rates (or more dearly, at higher rates), until the Fed's interest rate target is met. Open market operations can also target specific increases in the money supply in order to get the banks to loan funds more easily, by purchasing a specified quantity of assets; this is known as quantitative easing. The second option used by the Fed is to change the interest rates. In the U.S. this rate is known as the discount rate. Charging higher rates will mean that banks have to be more cautious with their own lending or risk failure and is an example of contractionary monetary policy. Conversely, lending to banks at lower rates will enable banks to make riskier loans at lower rates and run with lower reserves and is expansionary. The Fed also uses a third option, reserve requirements, which refer to the funds that banks must retain as a proportion of the deposits made by their customers in order to ensure that they are able to meet their liabilities. Lowering this reserve requirement releases more capital for the banks to offer loans or to buy other assets. Increasing the reserve requirement has a reverse effect, curtailing bank lending and slowing growth of the money supply. Benjamin Bernanke Video (Here's the link. Please watch it, there will be questions on the test) https:/ Monetary Policy and the 3 main tools of the Federal Reserve Monetary policy consists of the process of drafting, announcing, and implementing the plan of actions taken by the Federal Reserve Bank (the Fed) which controls the quantity of money in our economy and the channels by which new money is supplied. Monetary policy consists of management of money supply and interest rates, aimed at achieving objectives such as controlling inflation consumption, growth, and liquidity. These are achieved by actions such as modifying the interest rate, buying or selling government securities, and changing the amount of money banks are required to maintain as reserves. First is the buying and selling of short-term bonds on the open market using newly created bank reserves. This is known as open market operations. Open market operations traditionally target short term interest rates. The Fed adds money into the banking system by buying assets (or removes in by selling assets), and banks respond by loaning the money more easily at lower rates (or more dearly, at higher rates), until the Fed's interest rate target is met. Open market operations can also target specific increases in the money supply in order to get the banks to loan funds more easily, by purchasing a specified quantity of assets; this is known as quantitative easing. The second option used by the Fed is to change the interest rates. In the U.S. this rate is known as the discount rate. Charging higher rates will mean that banks have to be more cautious with their own lending or risk failure and is an example of contractionary monetary policy. Conversely, lending to banks at lower rates will enable banks to make riskier loans at lower rates and run with lower reserves and is expansionary. The Fed also uses a third option, reserve requirements, which refer to the funds that banks must retain as a proportion of the deposits made by their customers in order to ensure that they are able to meet their liabilities. Lowering this reserve requirement releases more capital for the banks to offer loans or to buy other assets. Increasing the reserve requirement has a reverse effect, curtailing bank lending and slowing growth of the money supply. ...
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