Finance 363 Formula Sheet
1.
Real rate of interest
ri = r* + Inflation Premiumi
2.
Rate of return on debt = r
= rRF + RP = rRF + [DRP + LP + MRP]
3.
Yield on an N year bond:
RN= (r1 + r2 + rN) / N
= (r*1 + IP1) + (r*2 + IP2) + (r*N + IPN) / N
4.
Yield on
FINANCE
18:14
Chapter 2- Financial Assets (instruments)
1. Real asset- physically, observable, or touchable, item
2. Financial asset- an asset that represents a promise to distribute cash flows at some future
time
3. Common Equity- sum of the firms common
Question 1 1o out of 10 points
Monev markets are markets for
Selected Answer: J.
Shortterm debt securities.
Correct Answer: J.
Shortterm debt securities.
Question 2 10 out of 10 points
When a firm makes an earnings announcement that is different than what
Question 1 10 out of 10 points
The real riskfree rate of interest is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next yearI and run at 6
percent the year after (Year 3}. According to the expectations theory, what s
Question 1 10 out of 10 points
Assume that your required rate of return is 12 percent and you are given the following stream of cash flows:
-<
I'D
{u
1
Cash Flow
$10,000
15.000
15.000
15.000
15.000
20.000
U'l-b-LUNr-Dl
If payments are made at the end of e
Question 1 to out of 10 points
All else equal, a decrease in reserve requirements will cause
Selected Answer: J
excess reserves to increase.
4'1
Correct Answer: J
excess reserves to increase.
Question 2 10 out of 10 points
Unlike the United States. many c
Finance 363
Exam 3
Form A
Spring 2012
The following 12 questions are worth 6 points each = 72 points.
Q1. Suppose the annual yield on a 2-year Treasury bond is 6.25% and the yield on a 1-year bond
is 5%. Using the expectations theory, forecast the interes