FINANCE 325
Bond Valuation
EXTRA PROBLEMS ANSWER KEY
1. It is now September 8, 2010, and Kevin Arnold wants to buy a Norcom bond that is paying a
12.00% coupon (compound semi-annually). Kevin determines that the bond will expire on
September 7, 2017 and t
Topic 1: Overview
Part II: Time Value of Money & Security Valuation
ANSWER KEY
1. Daphnes husband Niles Crane passed away unexpectedly a few weeks ago of a heart attack.
In his will, Niles left Daphne $1,060,000 in a trust fund. According to the terms of
Topic 1: Overview
Part I: Financial Markets & Institutions
ANSWER KEY
1. How would economic transactions between suppliers of funds (e.g., households) and users of
funds (e.g., corporations) occur in a world without financial institutions?
If there were n
Final Exam: Friday September 7th, 2012; 1:00pm 3:00pm, Stratton Hall 113
The final exam will be cumulative. It will be closed book and closed notes. You will need a
calculator to solve some of the problems, please remember to bring it. I will post the sol
FIN 3250
Spring 2011
Dr. Tufte
Chapter 11 Study Questions
There are 2 sections of these questions:
Section 1: Quantitative questions that will appear on the exam as written . These are a substitute for not having
time for quantitative homework on this cha
Financial Calculator
Set-up
Set number of decimals to 4
TI: 2nd, format, 4, enter; HP: shift, disp, 4
Set number of payments per year to 1
TI: 2nd, P/Y, 1, enter; HP: 1, shift, P/YR
Make sure you understand your calculator!
Read the manual
Do TONS o
ANALYSIS OF FINANCIAL MARKETS
(Fin. 325)
Financial markets can be classified by:
1.
2.
3.
4.
I.
WHEN a security is sold;
HOW/WHERE a security is traded (type of market structure);
MATURITY of securities traded.
DOMESTIC -vs- INTERNATIONAL markets.
Markets
Name _
10 am _ 12 pm _
In-class Assignment #1 Answer Key
1. To find the present value of a zero coupon bond, how often should you compound? Why?
All else equal, zero coupon bonds should be compounded annually. Coupon bonds are
compounded semi-annually bec
Name _
10 am _ 12 pm _
In-class Assignment #2 (Answer Key)
1. When is modified (economic) duration NOT a useful measure? Why?
Modified duration is a measure of the approximate change in price due to a change in interest
rates. In general, modified duratio
Formulas: Exam 2
(Fin. 325)
Money Market Instruments Formulas.
1.
Effective Annual Return (EAR).
a. General EAR Formula.
ibey
EAR 1
365 / h
365 / h
1
NOTE: Use this formula when you have a BEY for an instrument.
b. EAR for Single-Payment (Add-On) Inst
Formulas: Exam #3
(Fin. 323)
Bond Formulas
1. The Present Value Bond Pricing Models.
a. The Present Value Model (annual payments).
n
P Ct
t i
1
(1 Ym) t
b. The Present Value Model (semi-annual payments).
2n
Pm
t 1
Pp
Ci 2
t
(1 i 2) (1 i 2) 2 n
2. The Yie
Supp. TVM Problems: Expect problems just like these on the quiz.
1. What is the present value of a security that promises to pay $2,000 in 12 years if the quoted
rate is 6 percent compounded annually?
N = 12
I=6
PV = ?
PMT = 0
FV = 2000
or
HP calculator:
Formulas: Exam 1
(Fin. 325)
1,
Effective (Equivalent) Annual Rate (EAR).
i
EAR [ 1 ]c 1
c
2,
Fisher Equation.
i = RIR + Expected (IP)
or:
i = r + Pe (Expected Inflation Premium)
Realized Real Rate:
r = i - Pa (Actual Inflation Premium)
3.
Components of th
Chpt. 7: Mortgages and MBSs
Mortgages are loans to individuals or businesses to purchase homes,
Mortgages are loans to individuals or businesses to purchase homes,
land, or other real property
land, or other real property
Many mortgages are securitized
Ma
Chapt. 1: Primary versus
Secondary Markets
Primary markets
Primary markets
markets in which users of funds (e.g.,
markets in which users of funds (e.g.,
corporations and governments) raise funds by
corporations and governments) raise funds by
issuing
Chapter 2: Interest Rates
Loanable Funds Theory
Loanable Funds Theory
Loanable funds theory explains interest
Loanable funds theory explains interest
rates and interest rate movements
rates and interest rate movements
Views level of interest rates in fina
Chpt. 4: The Federal Reserve
Founded by Congress under the
Founded by Congress under the
Federal Reserve Act in 1913
Federal Reserve Act in 1913
Subject to oversight by Congress
Subject to oversight by Congress
under its authority to coin money
under
Practice Multiplier Problems
Multiplier = (1 + C)/(rr + X + C)
Where:
rr = the required reserve ratio of reserves to deposits as mandated by the
Fed
C = the ratio of cash held by the public to the deposits held by the public
X = the excess reserve ratio o
These are the Implied Forward Rate problems you are responsible for
R1=4% and R2=4.5%
What is the implied 1-year forward rate for year 2?
f =(1.045^2)/(1.04) 1 = 5.00%
2 1
R2=4.5% and R3=5.2%
What is the implied 1-year forward rate for year 3?
f =(1.052^3
HOW TO USE YOUR TI BA II PLUS
CALCULATOR
This document is designed to provide you with (1) the basics of how your TI BA II Plus financial
calculator operates, and (2) the typical keystrokes that will be required on the CFA
examination. A similar guide as
Name _
10 am _ 12 pm _
In-class Assignment #3
1. Explain how repos could be both and asset and a liability for depository institutions.
Recall that most repos (repurchase agreements) are federal funds borrowing (borrowing
between banks) with collateral. D
Financial Institutions and Markets
Finance 325: Winter 20142015
Quiz #1 Guide to Answers
Multiple Choice:
1. A All else equal, the bond with a longer time to maturity will have a lower price, because
investors must be compensated for the additional time r
Topic 4: Financial Markets
Part I: Money Markets
What are FMs?
Capital vs. Money Markets
A. Money
Trade short-term debt < 1 year only
B. Capital
Trade debt w/ maturity >1 year +
Role of equity?
Prof. David Becher
Financial Institutions & Markets
2
Mone
FIN 321
Securities Analysis and Portfolio Management
Homework #2
Due Date: Tuesday, January 2, 2016 (in class)
1. Download monthly share price information for the period between December 3, 2010 and December 3,
2015 (this is 61 observations for a total of
Introduction and Overview
Chapter 1
Investment vs. consumption
Consumption: assets purchased are
immediately consumed
Investment: purchase assets today with
the expectation of future benefits
Why should benefits accrue?
Real vs. financial assets
FA:
Financial Statement Analysis:
A Brief Review
Chapter 14
Note: please bring the
Microsoft handouts for this
section of the course you
will need them.
Three financial statements
Income Statement
Summary of revenues and expenses over some period
of time
B
Equity Valuation
Chapter 13
Methods of Valuing a Firm
Comparables
Examine financial data for similar companies
(industry, risk, etc.) and buy relatively cheap
firms
Book value
Net worth of a company shown on the balance
sheet (Assets Liabilities)
Spr
The Short-Run and Long-Run Impact of Monetary Policy
(Fin. 325)
I.
The Short-Run Impact of Monetary Policy.
A.
Monetary Policy and Investment.
1.
Investment demand by the business sector traditionally has been
sensitive to changes in interest rates (hurdl
An Historical Perspective on Inflation in the U.S.
A.
Introductory Comments.
1.
The U.S. has enjoyed very mild real asset inflation overall for
quite some time.
2.
Financial asset inflation was though prevalent throughout the
1990s in both the stock marke
The Federal Reserve Balance Sheet
Assets Liabilities
(percent) (percent)
Loans 0.170 Federal Reserve notes 81.5%
Government and agency securities 81.6 Deposits: 14.1
Coins 0.2 Depository institution reserves 8.3%
Cash items in process of collection (C
ECONOMIC SCHOOLS OF THOUGHT
AND THEIR ASSUMPTIONS
School
Keynesian (Neo-Keynesian)
Classical
Approach:
Interventionist
Passive
AD/AS Curve:
Price
Level
Supply-Side (Neo-Classical)
cfw_
AS
Price
Level
- Says Law
- Flexible
Wages & Prices
AS
AD
Mixed
Price