FINANCIAL MARKETS
TRADE
FINANCIAL INSTRUMENTS vs SECONDARY
PRIMARY
MARKETS
MONEY
vs CAPITAL MARKETS
PRIMARY MARKETS
FACILITATE
THE ISSUANCE OF NEW SECURITIES FUNDS TO THE INITIAL ISSUER OF SECURITIES
PROVIDE
SECONDARY MARKETS
FACILITATE
THE TRADING OF EXI
Extra Problems for Chapter 5 Solutions
1.
March, Inc., is expected to pay a dividend of $1.50 next year. If dividends are expected
to grow at a constant rate of 5% per year forever, how much is March stock worth to an
investor who requires an 8% rate of r
Extra Bond Problems Solutions
1.
A $1,000 par bond has a remaining maturity of 13 years and a required return of 8%. The
bonds coupon rate is 5%. What is the value of the bond?
FV = $1,000; N = 13; I = 8%; PMT = 0.05 x $1,000 = $50
Find PV = P0 = $762.89
Chapter 1
The Role and Objective of Financial Management
CHAPTER 1
THE ROLE AND OBJECTIVE
OF FINANCIAL MANAGEMENT
ANSWERS TO QUESTIONS:
1. Shareholder wealth is defined as the present value of the expected future returns to the
owners (that is, shareholde
Extra Problems for Chapter 9
1.
You must evaluate a proposal to buy new production equipment for your company. The base price of
the new equipment is $480,000, and shipping and installation costs would be another $35,000. The
equipment will be depreciated
Extra Problems One for Chapters 5
1.
If you require a 9% annual rate of return on your investments, which of the following
investments would you prefer?
A.
$15,000 five years from today.
I = 9%
FV = $15,000
N=5
Find PV = $9,748.97
B.
$1,000 per year for 1
DETERMINANTS OF INOMINAL INTEREST RATE NTEREST RATES
INTEREST RATES OBSERVED IN FINANCIAL MARKETS
TIME VALUE OF MONEY
PRESENT FUTURE FIN3850
VALUE
VALUE
LOANABLE FUNDS THEORY
SUPPLY
AND DEMAND FOR LOANABLE FUNDS EQUILIBRIUM INTEREST RATES OF LOANABLE FUND
INTEREST RATE MCOUPON RATE EASURES
REQUIRED EXPECTED REALIZED
RATE OF RETURN (rrr) RATE OF RETURN (Err)
RATE OF RETURN (rr)
COUPON RATE
DETERMINES
THE CASH FLOW THE BOND ISSUER PROMISES TO PAY CONSTANT OVER THE
GENERALLY
LIFE OF THE BOND
REQUIRED RATE OF
FEDERAL RESERVE SYSTEM BANK OF THE U.S. CENTRAL
FOUNDED
BY CONGRESS UNDER THE FEDERAL RESERVE ACT IN 1913
FUNCTIONS
CONDUCT
MONETARY POLICY MAKE MONEY SUPPLY RESPONSIVE TO ECONOMY & REGULATION OF DEPOSITORY INSTITUTIONS STABILITY OF FINANCIAL SYSTEM (EX:
MONEY MARKET INSTRUMENTS ORIGINAL MATURITY
LESS
LARGE
1 YEAR OR
DENOMINATION (TRADING UNITS OF $1M TO $10M) RISK OF DEFAULT LIQUID AND MARKETABLE FINANCIAL INSTRUMENTS (ACTIVE SECONDARY MARKETS)
LOW
HIGHLY
MMMFs
DATE SEP 2008 DEC 2008 SEP 2010 ALL $3,576B
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Extra Problems Two for Chapters 5
1.
A Finance Inc. agent has just presented the following offer: if you deposit $25,000 with
the firm today, it will pay you $10,000 per year at the end of years 8 through 15. If you
require a 15% annual rate of return on
Extra Problems Two for Chapters 5
1.
A Finance Inc. agent has just presented the following offer: if you deposit $25,000 with
the firm today, it will pay you $10,000 per year at the end of years 8 through 15. If you
require a 15% annual rate of return on