FI 101
Introduction to Finance
Midterm 1-Practice Test
Prof. Alan
PART I - MULTIPLE CHOICE (3 pts each)
1) The primary goal of a publicly owned corporation is to _.
A) maximize dividends per share
C)
Ch 7: Bond Characteristics and Valuation
Prof. Alan
In-Class Quiz
1) Debentures are expected to have a low er yield than secured bonds because the debentures are
more risky and therefore less desirabl
11/7/2017
11/7/2017
Chapter 6
Risk and Return
Prof. Nazli S. Alan
Fairfield University
Prof. Alan
http:/www.investopedia.com/terms/r/riskreturntradeoff.asp
3
Risk-Return Trade-Off
Returns
Holding P
A) unsystematic risk
C) firm- specific risk
B) non- diversifiable risk
D) diversifiable risk
2) Caldw ell, Inc. sold an issue of 30- year, $1,000 par value bonds to the public. The bonds ca
coupon rat
share, and the dividend for the year w i ll be $3.00. What is the doll ar gain on Spartan stock?
A ) $51.00
B) $1.00
C) $2.00
D ) $3
3) Even though an investor expects a positive rate of return, it is
Week 7 Graded Discussion
The volume of commercial and industrial loans made by banks has declined over the past few decades,
while the volume of real estate loans has risen. Explain why this trend occ
Week 2 Quiz #1
1. The Central Bank of the United States is:
a. The Bank of America
b. The Federal Reserve System
c. The U.S. Treasury
d. Citibank
2. Which of the following statements best describes fi
Week 5 Graded Discussion
a. Discuss at least three reasons and opinions as to why a booming stock market is not always a good
thing for the economy. Feel free to provide examples of your thoughts.
b.
Week 8 Graded Discussion
List at least two ways the financial crisis of 2007-2009 could lead to a change in the appointment process
of presidents of the regional Federal Reserve banks.
Answer
The mult
Week 10 Graded Discussion
Based on information covered this week, what is your opinion of where the economy is heading in the
near future? How do you think Fiscal and Monetary Policy will be used to i
Week 2 Quiz #1 Part 2
1. A primary financial market is:
a. located only in New York, London, and Tokyo but can handle transactions anywhere in
the world.
b. one where the borrower obtains funds direct
Week 4: Analytical Problem
1. Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two
years. During that time, the interest rate falls to 4 percent. Calculate your
annual holdi
Week 9: Analytical Problem
1. Follow the impact of a $100 cash withdrawal through the entire banking system,
assuming that the reserve requirement is 10 percent and that banks have no
desire to hold e
Week 7: Analytical Problem
1. Suppose a bank faces a gap of -20 between its interest-sensitive assets and its
interest-sensitive liabilities. What would happen to bank profits if interest rates
were t
4/2/2009
Chapter 6. Solution to Ch 06 P14 Build a Model
a. Use the data given to calculate annual returns for Bartman, Reynolds, and the Market Index, and then calculate
average returns over the five-
106F Midterm
Thursday, October 19
Time
o The exam will take the full class time, from 8:00 9:15
o Pace yourself and watch your time, dont spend too much on
any one question
Formula Sheets:
contract is an agreement to pay a scheduled payment to the
policyholder at every interval 1/m of a year while the annuitant is alive,
up to a maximum number of nm payments. Again the payment
amounts a
cumulative sum of the Dx column: Nx = X y=x Dy The expected
present value for the finite-duration life-annuity due is obtained as a
simple difference ax:ne = Xn1 k=0 v k+x lx+k Dx = Nx Nx+n Dx There
i
integer p. 64 tpk = S(k) t(S(k + 1) S(k) S(k) = 1 t qk under (i) p. 66
tpk = S(k + t) S(x) = e (k) t = (1 qk) t under (ii) p. 66 tpk = S(k + t)
S(k + 1) S(k + 1) S(k) = 1 qk 1 (1 t)qk under (iii) 94 C
either until death or for a total of nm payments, the expected-present
value notation 100 CHAPTER 4. EXPECTED PRESENT VALUES OF
PAYMENTS is a (m) x:ne . However, unlike the case of annuities-certain
(
nEx and is evidently equal to A 1 x:ne = nEx = v n npx (4.6) The other
contract frequently referred to in beginning actuarial texts is the
Endowment Insurance, which for a life aged x and term n is si
fraction 1/m of a year during which death occurs, and life-annuities pay
regularly m times per year until the annuitant dies. The term or
duration n of the contract will always be assumed to be an int
between exact ages 5, 10. In both parts (a), (b) of the problem, assume
that the interest rate is fixed at 5%, and assume wherever necessary
that the individuals distribution of death-time is uniform
elapsed, and if he is alive at the end of n years he receives $15,000. This
contract is evidently a superposition of a n-year pure endowment with
face value $15,000 and a n-year temporary life annuity
result in the removal of a factor m from the right-hand sides of the last
two equations). Two other applications of the balancing-equation
principle can be made in calculating level premiums for insur
payment at time n in the case of a finite term n over which the
annuitant survives) as (life) annuities-immediate. The present value of
the insurance companys payment under the life annuity contract i
expression for the level annual pure-risk premium for the policy, in
terms of standard actuarial and interest functions. (17). Prove that for
every m, n, x, k, the net single premium for an n-year ter
except in the very special (completely artificial) case where (x+k) has
the same constant value for all x, k. In the latter case, where T is an
exponential random variable, it is easy to check from (5