FIN 341 Winter 2016 Midterm 2 Excerpt
Multiple Choice: Select 1 answer per question. Items 1-8: 3 points each. 9-14: 4.5 points each.
1. Suppose corporate managers consistently make large returns when they trade based on information about their firm that
Bonds
CHAPTER 6
Definition
Bond:
a contract dictating that a borrower will
repay principal plus contractually defined
interest to a lender according to a schedule
defined in the contract
Bond Issuers
Who
borrows through bond issues?
Key Elements of Bond
FINANCE 341 PRINCIPLES OF FINANCE
TOPIC 1
OVERVIEW OF FINANCIAL MANAGEMENT
Reading: These notes; and optional RWJ*: Chapters 1 and 2
Problems: Quiz 1 Practice Problems
Objectives:
1. Brief overview of the field of Finance
2. Identify important finance-r
TOPIC 2
TIME VALUE OF MONEY:
COMPOUND INTEREST, PRESENT & FUTURE VALUES
RWJ textbook (optional) reading: Chapter 5 and Ch. 6 section 6.3
Objectives:
1. Explain and understand compound interest, and the
concept of discounting
2. Compute the present or futu
FIN 341
Chapter 4 Lecture Outline
Valuing Streams of Cash Flows
Future Value
Suppose we plan to save $2,500 today and $2,500 at the end of each of the next two years. If we earn
8% annual interest on our savings, how much will we have three years from tod
Chapter 5: Interest Rates
Compounding and Quoted rates vs. Effective rates
Rates can be expressed with various compounding frequencies. Weve used annually compounded annual rates
(except when I used a monthly rate for monthly cash flows).
If quoted rate =
_
Western Washington University
FIN 341
Mortgage Refinancing Case
You currently have a 30-year fixed rate mortgage with an annual interest rate of 8 7/8%
and monthly payments. The initial principal was $250,000, and you have made 15
monthly payments so fa
Financial planning focuses on the big picture
To develop an explicit financial plan, managers must establish basic elements of firms financial
policy:
1. The firms needed investment in new assets: Investment opportunities the firm chooses to
undertake
2.
Activities that bring in cash are sources of cash
Activities that involve spending of cash are uses of cash
Firm uses cash by either buying assets or making payments
If an asset went down, then the firm sold some assets.this is a net source
If a liability
1.1 Corporate Finance and the Financial Manager
Capital budgeting: Process of planning and managing a firms long term investments
Evaluating size, timing, and risk of future cash flows is essence of capital budgeting
Capital structure: Specific mixture of
Balance sheet: snapshot of the firm
Assets are either current or fixed
Fixed assets have relatively long-life
Can be tangible or intangible
Current asset has life of <1 year
Liabilities can be current or long-term
Current liabilities have a life of <1 yea
7.1
Coupon: Stated interest payment made on a bond
Face value: Principal amount of a bond that is repaid at the end of the term. Also called par
value
Coupon rate: Annual coupon divided by the face value of a bond
Maturity: Specified date on which the pri
2 ways to calculate future values for multiple cash flows
(1) Compound accumulated balance forward one year at a time
(2) Calculate the future value of each cash flow first and then add them up
Annuity: A level stream of cash flows for a fixed period of t
Future Value (FV): amount of money an investment will grow to over some period of time at
some given interest rate
-If you invest for 1 period at an interest rate of r, investment will grow to ( 1+r ) per dollar
invested
Compound interest: Interest earned
FIN 341 Midterm 1 Excerpt of Winter 2016 Midterm 1
Version A
1. In the United States and around the world, more businesses are _than any other organizational form.
A. sole proprietorships
B. partnerships
C. limited partnerships
D. corporations
2. Credit s