Bonds
Securities issued by corporations may be classified as equity services or debt securities.
o A debt represents something that must be repaid
o The main differences between debt and equity:
Debt isnt an ownership interest in firm creditors generally

Prof. Osher, FE323
Risk and Return
Chapter 13
Rules of Investing
2
There is a Reward for Bearing Risk: Risk
Premium
Return on top of Risk Free
Risk Premium is larger for Riskier
Investments
Two Types of Risk
Systematic
Unsystematic
Portfolios can eliminat

Time Value of Money
continued
Copyright 2013 Ray Wilson Boston University
$ Today or $ Tomorrow?
$ Today is more valuable than the same amount in
the future
Credit Risk
Inflation Risk
Opportunity Cost
Financial Theory is built on the measurement of
O

Time Value of Money
Copyright 2013 Ray Wilson Boston University
$ Today or $ Tomorrow?
$ Today is more valuable than the same amount in
the future
Credit Risk
Inflation Risk
Opportunity Cost
Financial Theory is built on the measurement of
Opportunity

Weighted Average
Cost of Capital
WACC
1
Key Concepts and Skills
Determine a firms cost of equity capital
Determine a firms cost of debt
Determine a firms overall cost of capital
Understand pitfalls of overall cost of capital and
how to manage them
finally

Making Capital Investment
Decisions
Chapter 10
Copyright Ray Wilson Boston University 2013
Analyzing a Project: Compare
Investment with Reward
n
n
Investment: Projected Capital
Spending
Reward: Projection of two elements
1.
2.
Operating Cash Flow
Working

Project Risk
Chapter 11
Key Concepts and Skills
Understand forecasting risk and
sources of value
Understand scenario and sensitivity
analysis
Understand forms of break-even
analysis and operating leverage
Evaluating NPV Estimates
NPV estimates are estimat

Chapter 7
Bond Valuation
Ray Wilson Boston University 2013
Key Concepts and Skills
n
n
n
Know the important bond features and bond
types
Understand bond values and why they
fluctuate
Calculate bond values, rate of return, price
Understanding the Business

Chap 9
NPV and IRR
To Invest or Not Invest
Given a project with a set of cash
flows, how to deicide if its a good
investment?
Given 2 projects and limited
resources to invest, which one is
better?
3 Methods
Payback
92
NPV
Payback Period
Definition: How lo

Chapter 8
Stock Valuation
1
Key Concepts and Skills
Understand how stock prices depend on future
dividends and dividend growth
Be able to compute stock prices using the
dividend growth model
2
Basic Stock information
Stockholder equity (Bal. Sheet): $15 m

FE323 Final Exam Study Guide
Chapter 11: Project Analysis and Evaluation:
Forecasting Risk: The possibility that errors in projected cash flows will lead to incorrect decisions. Also, estimation risk.
Scenario Analysis: The determination of what happens t