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Unformatted text preview: AC-221Second Midterm Study GuideBy JinTable of Contents:1. Chapters Covered2. Chapter 10, Bonds3. Chapter 13, Cash Flows4. Chapter 11, Stockholder’s Equity5. Chapter 9, Liabilities6. Test-Taking Advice1. Chapters CoveredMidterm III covers 4 chapters total, though Liabilities may not be on it at all, at least not for my class, according to the fact that we had no practice problems for it. But watch out anyways.In terms of difficulty, I would rank Statement of Cash Flows as the most difficult, followed by Bonds and then Stockholder’s Equity. Statement of Cash Flows is the most difficult due to the enormous number of T-Accounts you have to write and the numerous traps in those T-Accounts that you can fall into if you are not careful about how you answer the problem. These accounts will literally drive you insane if you are not prepared for them.Bonds is intermediate because of the number of formulas and the precision you have to use in order to calculate the terms, especially in calculating Book Values and Amortization amounts with the effective interest method. Also, it is easy to confuse numbers here as well. But if you know the principals, you’ll be pretty well off.Stockholder’s Equity is the most straightforward of the three concepts, but can still fuck you up if you do not pay enough attention to when to use what numbers. This is a very easy place to misconstrue numbers in. But overall, it is the least stressful if you know what you are supposed to know.Liabilities seem to be purely conceptual in terms of what it is about, and will probably not be on the test. 2. CHAPTER 10, BONDSTerms to Know:-Face Value: What the price is on the front of the certificate. If you don’t get this, fail.-Principal: Amount payable at the date of maturity. Same value as Face Value.-Selling Price: BV at that point in time.-Discount: Market Interest Rate is Higher than Coupon Rate-Premium: Market Interest Rate is Lower than Coupon Rate-Par: Market Interest Rate = Coupon Rate-Amortization: The difference between the interest payment and the interest expense for each period. This is either added to (in discount situations) or subtracted from (in premium situations) the Book Value.-Book Value: A calculation of how much the Bond is worth at that given point. Given by the formula [(Face Value)x(PV by market rate)]x[(Face Value)x(Coupon Rate/Periods)x(PVA by market rate.)] -Coupon Rate: The natural rate of interest given by the company on the bond.-Market Interest Rate: The rate at which the market operates.-PV: Present Value. Take the market interest rate and divide by number of periods in one year, then find the total number of periods. Use these two numbers on the PV chart to find the number you should multiply the face value by to get the initial book value....
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This document was uploaded on 08/10/2011.
- Spring '11