Financial Markets, Institutions & Intl’ Finance Systems
FIN 3244

Fall 2011
Chapter 2 Outline
Interest is the cost of money. It varies with:
Economic changes
Inflation
Money supply
Economic and political stability versus uncertainty
Potential returns from other investments (opportunity cost)
Economic environment
Interest
Financial Markets, Institutions & Intl’ Finance Systems
FIN 3244

Fall 2011
Chapter #1: The Financial System
The purpose of the financial system is to move money between lenders and borrowers.
Financial assets for discussion
Debt securities (bonds)
Equity securities (stocks)
Securitized loans (mortgagebacked securities)
Financ
Fin 4504
Chapter 1
1.Investment: Sacrifice something of value now, money or other resources.
Expect to benefits from that sacrifice in the future.
Reduced current consumption, planned later consumption.
Examples: Investment in securitiesstocks, bonds, op
Study Guide (Survival Manual) of FIN 4424
Problems in Financial Management
Designed by Master Tony  May the force be with you
I. Review
1. The calculation of Present Value and Future Value (*Chapter 2.15)
2. Stock valuation Dividend Discount Model (DDM)
Exam 3 Study Guide
(not necessarily exhaustive)
Capital Budgeting Project Analysis and Evaluation:
1. What is the standalone principle? Why is it important to capital budgeting?
Companies are the sum of its parts
You can look at each part individually a
Exam 2 Study Guide
(not exhaustive)
Chapter 7:
What is debt capital?
Borrowings the company has made and will need to pay back
What are characteristics of debt?
Define the following terms related to bonds: indenture, par value, face value, face amount, c
Exam 1 Study Guide
1. What are three forms of business organization? Describe benefits of each. Describe downfalls of
each.
Sole Proprietorship owned by one person
o Advantages: *Same as Partnership*
o Disadvantages: *Same as Partnership*
Partnership un
24.
The proprietary view of a firm looks at the basic accounting
equation from the viewpoint of
a.
assets.
b.
liabilities.
c.
owners equity.
d.
revenues.
25.
a.
b.
c.
d.
Dividends paid by a corporation represent a/an
expense of the corporation.
liability
Operating expenses
Net income
MultipleChoice Questions
b.
c.
d.
Select the best answer from those provided.
21.
A type of analysis that helps identify similarities and
differences across companies or business units at a single moment in
time is
a.
trend
Chapter 14
Cost of Capital
Key Concepts and Skills
Know how to determine a firms cost
of equity capital
Know how to determine a firms cost
of debt
Know how to determine a firms
overall cost of capital
Understand pitfalls of overall cost of
capital and
Chapter 16
Financial Leverage
and Capital
Structure Policy
Key Concepts and Skills
Understand the effect of financial
leverage on cash flows and the cost
of equity
Understand the impact of taxes and
bankruptcy on capital structure
choice
Understand the
Exam 3 Formula Sheet (2 pages):
1.
WACC = wD RD,BT (1  t) + wE RE + wP RP = wD RD,AT + wE RE + wP RP
2.
RE = Rf + i(E(Rmarket) Rf)
3.
RE = (D1/P0) + g
4.
RE = RA + (RA RD)(D/E)
5.
VU = EBIT(1T) / RU
6.
VL = VU + DTC
7.
RP = D/ P0
8.
RD,AT = RD,BT (1  t
FIN 3403 Exam 1 Review Sheet
Textbook Questions:
1. Chapter 2, Question #13.
Given Information:
CF to creditors= $60,000
CF to stockholders= $105,000
Net capital spending= $1,300,000
Reduced net working capital by $55,000
What was the firms operating cas
Chapter 17
Dividends and
Payout Policy
Key Concepts and Skills
Understand dividend types and how
they are paid
Understand the issues surrounding
dividend policy decisions
Understand the difference between
cash and stock dividends
Understand why share
Exam 3 Review
Quantitative Questions
1. National Home Rentals has a beta of 1.38, a stock price of $19, and recently paid an
annual dividend of $0.94 a share. The dividend growth rate is 4.5 percent. The market has
a 10.6 percent rate of return and a risk
Exam 3 Review Key
1. National Home Rentals has a beta of 1.38, a stock price of $19, and recently paid an
annual dividend of $0.94 a share. The dividend growth rate is 4.5 percent. The market has
a 10.6 percent rate of return and a risk premium of 7.5 per
Exam 3 Review
Know the principles and examples of systematic & unsystematic risk
Know how to calculate expected returns, standard deviation and variance of a portfolio
Know what effective (portfolio) diversification is and how it affects risk
Know what a
Chapter 6
Discounted Cash Flow Valuation
Key Concepts and Skills
Be able to compute the future value of
multiple cash flows
Be able to compute the present value of
multiple cash flows
Be able to compute loan payments
Be able to find the interest rate
Chapter 7
Interest Rates and
Bond Valuation
Key Concepts and Skills
Know the important bond features and bond
types
Understand bond values and why they
fluctuate
Understand bond ratings and what they mean
Understand the impact of inflation on interest
Chapter 9
Net Present Value
and Other
Investment
Criteria
Key Concepts and Skills
Be able to compute payback and discounted
payback and understand their shortcomings
Understand accounting rates of return and
their shortcomings
Be able to compute intern
Exam 2 Review:
Know how to calculate the price of a stock with zero growth, constant growth, and nonconstant (or supernormal) growth (remember to draw your timeline)
Know how to use the dividend growth model to obtain either the price of stock, required
r
Chapter 2
Financial Statements, Taxes, and Cash
Flow
Key Concepts and Skills
Know the difference between book
value and market value
Know the difference between
accounting income and cash flow
Know the difference between
average and marginal tax rates
Chapter 8
Stock Valuation
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
Understand how corporate directors are
elected
Understand how
Chapter 5
Introduction to Valuation: The Time
Value Of Money
Key Concepts and Skills
Be able to compute the future value of an investment
made today
Be able to compute the present value of cash to be
received at some future date
Be able to compute the
Chapter 1
Introduction to Corporate Finance
Key Concepts and Skills
Know the basic types of financial management
decisions and the role of the financial manager
Know the financial implications of the different
forms of business organization
Know the goal
Chapter 12
Some Lessons
from Capital
Market History
Key Concepts and Skills
Know how to calculate the return on
an investment
Understand the historical returns on
various types of investments
Understand the historical risks on
various types of investme
Chapter 10
Making Capital
Investment
Decisions
McGrawHill/Irwin
Key Concepts and Skills
Understand how to determine the
relevant cash flows for various types
of proposed investments
Understand the various methods for
computing operating cash flow
Under
Exam 2 Study Guide
(not exhaustive)
Chapter 8:
1. What is equity capital? What are characteristics of equity?
2. Discuss the structure of a corporation (shareholders, board of directors, management)
3. What is a proxy?
4. Explain why small shareholders sh
Financial Markets, Institutions & Intl’ Finance Systems
FIN 3244

Fall 2011
Chapter 8 Outline Margin & ShortSelling (pg. 171180)
Market Directions
General Movement
Bull vs Bear
Basic types of Security trades: all buy low; sell high
Long purchase (position) vs shortsale (position)
Expectation of higher returns
Current inco