Debt Cost of capital = The cost of raising money (for example for investment in new
projects) through borrowing.
Equity Cost of capital = the cost of equity is the return (often expressed as a rate of
return) a firm theoretically pays to its equity invest
Math 3650 Practice Problems Chapter 16
1. Define default. What happens to debt holders in default?
2. What is the difference between a firm in economic distress and a firm in financial
distress?
3. What are the two forms of bankruptcy? Which form is more
Math 3650 Spring 2016 Homework for Chapter 10
1. A common measure of the risk of a security is its volatility. Other measures of risk used in
special situations (possibly insurance!) are semi-variance, and expected tail loss. Briefly define
these 3 risk m
Math 3650 Chapter 15
1. What is a firms marginal tax rate?
2. What is the interest tax shield? What is the general formula for calculating the value that
the interest tax shield adds to a corporation? Why, in practice, is this value difficult to
calculate
Math 3650 Spring 2016 Practice/Review for Chapters 12-13
1. The risk free rate is 3% and the equity risk premium is 5%.
Google has volatility of 26% and a Beta of 1.45
Southwest Airlines has a Beta of 0.83. Its total volatility is 40%.
Which firm has grea
Math 3650
Problems Chapter 14
1. What is a firms capital structure?
2. What is the difference between levered und unlevered equity?
3. What are the conditions of perfect capital markets?
4. In perfect capital markets, how does leverage affect the risk of
Test two topic list Math 3650 Fall 2013 Chapters 9-17
Debt Cost of capital: The cost of capital that a firm must pay on its debt.
Equity Cost of capital: The cost of capital that a firm must pay on its equity.
Dividend Discount Model:
The price of a stock
Math 3650 Chapter 24 Problems and Solutions
1.
What is an indenture?
2. What is an original issue discount bond (OID)?
3. What are two types of unsecured corporate debt? What does this mean?
4. What are mortgage bonds?
5. What are asset-backed bonds?
6. W
Math 3650 Chapter 24 Lecture notes
Lets talk about bonds!
Corporate Bonds are loans made by corporations to borrow money for investments and growth.
Youve all had Math 2620 which teaches you how to price bonds (although Im going to
complicate that as we g
Math 3650 Fall 2014 Homework for Chapter 10
1. A common measure of the risk of a security is its volatility. Other measures of risk used in
special situations (possibly insurance!) are semi-variance, and expected tail loss. Briefly define
these 3 risk mea
Math 3650 Practice Problems - Chapters 4,7, 8
and term project
1. Define Internal Rate of Return (IRR). Define the Opportunity Cost of Capital.
If the IRR equals the opportunity cost of capital, what is the Net Present Value
of the project calculated usin
Math 3650 Spring 2016 Practice/Review for Chapter 11
1 .Define the Beta of a security. Give the formula for Beta.
2. Define covariance and correlation. How do we use correlation to help us achieve
diversification within a portfolio?
3. Define the efficien
Math 3650 Sample Test 2
Note: The real test will contain short answer type questions in addition to these
types of problems.
1. Given the following data for a company:
Debt (D) = $400 million; Equity (E) = $600 Million; rD = 6%; rE = 15% and corporate
tax
Test two topic list Math 3650 Chapters 9-17
Debt Cost of capital
Equity Cost of capital
Dividend Discount Model
Total payout Model
Discounted Cash Flow Model
Comparables
Volatility
Standard error
Systematic risk (and by its other names)
Firm-specific risk
US Statutory Framework
Reserves
Generally thought to cover a 75-85% event
Subject to an Actuarial Opinion supported by
Asset Adequacy Analysis
Risk-Based Capital (RBC) Overview
- Legal entity specific annual calculation,
developed by the NAIC to help
Math 3650 Practice Problems - RBC
1. What is Risk Based Capital? What does it measure? What is the primary determinant of
a companys RBC level?
2. Who are the primary users of Risk Based Capital?
3. How is the Risk Based Capital Ratio (RBC ratio) calculat
Math 3650 Sample Test Questions
Test One Chapters 1-8, 24
The questions below are taken from actual prior tests. This is meant to give you an idea of the
types of questions you may encounter on your test. Note: This is NOT intended as an indicative
exam.
Homework problems Chapter 6 and Duration
1. Current spot rates for US Treasury bonds are given below. Calculate the yield to maturity for a
$1000 3 year US Treasury note paying 4% annual coupons. The redemption value and par value
both equal $1000.
Term
S
Math 3650 Chapter 24 Problems and Solutions
1.
What is an indenture?
2. What is an original issue discount bond (OID)?
3. What are two types of unsecured corporate debt? What does this mean?
4. What are mortgage bonds?
5. What are asset-backed bonds?
6. W
Math 3650 Practice Problems - Chapters 4,7, 8
and term project
1. Define Internal Rate of Return (IRR). Define the Opportunity Cost of Capital. If the IRR
equals the opportunity cost of capital, what is the Net Present Value of the project
calculated usin
Math 3650 Practice Problems Chapter 3
1.
How should the costs and benefits of a project be compared? In particular, what decision
rule should financial managers use to compare costs and benefits?
2.
Your firm needs to buy a new $4500 printer. The manufact
Math 3650 Practice Problems Chapter 2
1. The 10-Q and 10-K financial reports are produced under what accounting standards?
2. What are the 3 main statements in the 10-Q and 10-K? Briefly describe them.
3. How is Stockholders Equity (also known as Book Val
Math 3650 Practice Problems - Chapters 1
1. As measured by the total number of firms, what is the most common type of business structure
in the U.S.?
2. Most large businesses are organized under what type of business structure?
3. What are the advantages
Chapter 9 Review Questions Math 3650
1. What is a firms Equity Cost of Capital?
2. Describe the Dividend Discount Model for valuing a firms stock price? What key
conclusion does this lead to concerning investment decisions for a firm?
3. What is the Total
Chapter 5 Review Questions Math 3650
1. Some examples of interest rate risk that insurance companies face are:
Prepayment risk
Market Risk
Disintermediation Risk
2. List 5 factors that influence interest rates.
3. Briefly define the following key short te
MATH 3650 Practice Problems
Chapter 3
1. How should the costs and benefits of a project be compared? In particular, what decision rule should financial
managers use to compare costs and benefits?
2. If you could finance a project at the risk free rate, ho
GAAP Net Income for Insurance Products
Some basic GAAP Concepts: Profits should emerge in proportion to the degree of
completeness of the earnings process under the contract or services rendered.
Implications: Certain expenses that are incurred in acquiri
Quick ratio = (current assets inventory) / current liabilities
Debt to Equity ratio = debt / equity = book value of debt / market cap
Debt to Earnings ratio
Operating Income = sales operating expenses
Non-operating Income can include gains or losses from
Test One Topics Math 3650 Chapters 1-9, 24
4 major types of business structures:
1. Sole proprietorship: most common (80%)
Adv: strong sense of ownership, easy to establish
Disadv: no separation of owner &
company, unlimited personal liability, hard acces