Chapter 6 The Stock Market
Concept Questions 1. The new car lot is a primary market; every new car sold is an IPO. The used car lot is a secondary market. The Chevy retailer is a dealer, buying and selling out of inventory. 2. The right to trade on the NY

Chapter 3 Buying and Selling Securities
Concept Questions 1. Purchasing on margin means borrowing some of the money used to buy securities. You do it because you desire a larger position than you can afford to pay for, recognizing that using margin is a f

School
of
Midterm I
Overview
Accounting&
Accounting&
Finance
School
of
Accounting&
Finance
Overview
Six questions, most with multiple parts
40% weight on Topic 2, remaining weight
spread over other topics reasonably
evenly
Midterm covers Topic 1 to Topic

Suppose the following zero-coupon bonds are trading at prices show below per $100 face value. Determing the correspond
Maturity (Years)
Price ($)
1
96.62
Bond Face Value
100
YTM-1
YTM-2
YTM-3
YTM-4
3.50%
4.00%
4.50%
4.75%
2
92.45
3
87.63
4
83.06
Determing

AFM 273
Managerial Finance (I)
Valuing Bonds (II)
Xuyang Ma
6.4 Corporate Bonds
Corporate Bonds
Issued by corporations
Credit Risk
Risk of default: the bond issue might not pay back
the full amount promised in the bond indenture =>
the bonds cash flows ar

AFM 273
Managerial Finance (I)
Class 7: Interest Rates (II)
Xuyang Ma
Review: APR v.s. EAR
Let be the periodic interest rate, and assume there are
such periods in one year. Then Definition:
APR: Simple interest earned in one year, no compounding.
= , wi

AFM 273
Managerial Finance (I)
Time Value of Money (I)
Xuyang Ma
Chapter 4 Outline
4.1 The Timeline
4.2 The Three Rules of Time Travel
4.3 Valuing a Stream of Cash Flows
4.4 Calculating the Net Present Value
4.5 Perpetuities and Annuities
4.1 The Timeline

AFM 273
Managerial Finance (I)
Time Value of Money (II)
Xuyang Ma
Review of Last Class
Timeline:
Inflows are positive cash flows.
Outflows are negative cash flows, which are indicated with a (minus) sign.
Review of Last Class (2)
Valuing a Stream of Cash

AFM 273
Managerial Finance (I)
Interest Rates (I)
Xuyang Ma
Review: Time Value of Money
Timeline:
Inflows are positive cash flows.
Outflows are negative cash flows, which are indicated with a (minus) sign.
Review: Time Value of Money
Valuing a Stream of C

AFM 121
AFSA Education
December 16, 2016
Overview of the Financial System
Banks
o Are a dominant financial intermediary in Canada
o Banking:
Attracts Deposits by offering safety and paying interest
Issues Loans and charges interest
Earns money on the i

AFM 273
Managerial Finance (I)
Arbitrage and Financial
Decision Making
Xuyang Ma
Chapter 3 Outline
3.1 Valuing Decisions
3.2 Interest Rates and the Time Value of Money
3.3 Present Value and the NPV Decision Rule
3.4 Arbitrage and the Law of One Price
3.5

Suppose your bank account pays interest monthly with an EAR of 6%. What amount of interest will you earn each month? I
will you need to save at the end of each month to accumulate $100,000 in 10 years?
EAR
EMR
PV
FV
NPER
6%
0.487%
0
100,000
120
PMT
-$615.

AFM 273
Managerial Finance (I)
Financial Statement Analysis
Xuyang Ma
Why do Financial
Markets exist?
Why do Financial Markets exist?
PEOPLE WITH
MONEY
CAPITAL
MARKETS
PEOPLE WITH
IDEAS
LENDERS
j
CAPITAL
MARKETS
BORROWERS
j
Why do Financial Markets exist?

AFM 273
Managerial Finance (I)
Course Introduction
Xuyang Ma
Todays Class:
Practical Information about the class
Syllabus and Exams
Overview of class:
Outline of topics covered
The axioms underlying finance
The main insights of finance
First topic of th

AFM 121
AFSA Education
December 16, 2016
Chapter 4 The Time Value of Money
The Timeline
Stream of cash flows a series of cash flows lasting several periods
A stream of cash flows can be represented on a timeline
Timelines are an important first step in or

AFM 121
AFSA Education
December 16, 2016
Chapter 1: The Corporation
1.1
The 3 Types of Firms:
1. Sole Proprietorship:
Is a business owned and run by one person
Relatively small in terms of revenues and profits produced
and people employed
Share the key

Discount R
0.1
Periods
Cash Flows
Discount Factor
PV
NPV
243.426
0
1
2
3
-1000
500
500
500
1 0.909091 0.826446 0.751315
-1000 454.5455 413.2231 375.6574
You want to endow an annual graduation party at your University. You want the event to be a memorable

AFM 121
AFSA Education
December 16, 2016
Chapter 23: The Mechanics of Raising Equity Capital
23.1
Equity Financing for Private Companies:
Sources of Funding:
When a private company decides to raise outside equity capital, it can seek
funding from several

AFM 121
AFSA Education
December 16, 2016
Chapter 2: Introduction to Financial Statement Analysis
1. The Disclosure of Financial Statements
Financial Statements
firm-issued accounting reports with information on past performance
reporting process is centra

AFM 121
AFSA Education
December 16, 2016
Chapter 5 Interest Rates
Interest Rate Quotes and Adjustments
The Effective Annual Rate
Interest rates are often stated as an effective annual rate (EAR)
The effective annual rate indicates the total amount of inte

AFM 273
Managerial Finance (I)
Class 8: Valuing Bonds (I)
Xuyang Ma
6.1 Bond Cash Flows, Prices,
and Yields
Bond Terminology
Bond Certificate
States the terms of the bond
Maturity Date
Final repayment date
Term
The time remaining until the repayment da

AFM 273
Managerial Finance (I)
Class 10: Valuing Stocks (I)
Xuyang Ma
Review: Valuing Bonds
Yield to Maturity
The YTM is the single discount rate that equates the present
value of the bonds remaining cash flows to its current price.
Yield to Maturity of a

Sole Proprietorships a business owned and run by one person. Although they are the
most common type of business unit in the economy, they are relatively small in terms of
revenues and profits produced and people employed.
Common Characteristics in a Sole

Bond is a security sold by governments and corporations to raise money from
investors today in exchange for the promised future payment.
Bond Indenture
Maturity date
Term
Bonds typically make two types of payments to their bonds
1. Coupons
o The bond

CAPM Capital Asset Pricing Model
Many investors do not appear to hold an efficient portfolio, but instead fail to
diversity and trade too much.
By appropriately diversifying their portfolios, investors can reduce without reducing
their expected return. D

Effective Annual Rate (EAR) The total amount of interest that will be earned at
the end of one year.
In general raising the interest rate factor *(1+r) to the appropriate power, we can
compute an equivalent effective interest rate for a longer time perio

Transaction:
Deposit
A
Buy Stock:
Price
# of shares
Total value of shares
Commission paid
Net cash
B
C=AXB
$0 D = B X C
E
$0 A - D - E
Buy Shares:
Price paid
# of shares
Total value of shares
$0
Cash paid
Amount borrowed
Margin
A
B
C=AXB
D
$0
#DIV/0!
Curr