FNCE 401 Equations and Formulas
Bond Equivalent Yield
rBEY =
1000 p 365
p
n
Where p is the bond price, n is the maturity of the bill in days.
Bank Discount Yield
rBDY =
1000 p 360
1000
n
Where p is the bond price, n is the maturity of the bill in days.
Bo
CHAPTER 1
THE INVESTMENT ENVIRONMENT
1.
a. Cash is a financial asset because it is the liability of the government.
b. No. The cash does not directly add to the productive capacity of the economy.
c. Yes. You can buy more goods and services than previousl
CHAPTER 2
FINANCIAL MARKETS AND INSTRUMENTS
1.
Money market securities are called cash equivalents because of their great
liquidity. The prices of money market securities are very stable, and they can be
converted to cash (i.e., sold) on very short notice
CHAPTER 3
TRADING ON SECURITIES MARKETS
1.
Individual solution - answers to this problem will vary.
a. The stock is purchased for 300 $40 = $12,000. Borrowed funds are $4,000.
Therefore, the investor must put up equity or margin of $8,000.
3.
b. If the sh
CHAPTER 6
OPTIMAL RISKY PORTFOLIOS
1. (a) for sure.
(b) and (d) are firm-specific.
(c) and (e) can be either firm-specific or due to market-wide factors.
3. (a) is true by definition.
(b) is also true: see for instance the example in Figure 6.15.
(c) is f
CHAPTER 5
RISK AVERSION AND CAPITAL ALLOCATION TO RISKY
ASSETS
1.
a. The expected cash flow is: (0.5 x $70,000) + (0.5 x 200,000) = $135,000
With a risk premium of 8% over the risk-free rate of 6%, the required rate of return is
14%. Therefore, the presen
CHAPTER 4
RETURN AND RISK: ANALYZING THE HISTORICAL RECORD
1.
Your holding period return for the next year on the money market fund depends on what
30-day interest rates will be each month when it is time to roll over maturing securities.
The one-year sav
FINANCE 401 SAMPLE FINAL EXAMINATION 1
Part 1: Multiple Choice Questions
(40 marks)
Read each question carefully and decide which of the choices best answers the question or completes the
statement.
1.
Financial intermediaries exist because small investor
Part 1: Multiple Choice Questions
1. E
2. D
3. B
4. A
5. D
6. B
7. A
8. B
9. C
10. A
11. E
12. B
13. A
14. C
15. C
16. C
17. E
18. A
19. C
20. E
21. D
22. B
23. D
24. E
25. A
26. D
27. C
28. C
29. D
30. B
31. D
32. B
33. E
34. C
35. A
36. C
37. A
38. A
39
Assignment 2
Problem 1 (15 marks)
Suppose the return on portfolio P has the following probability distribution:
Bear Market Normal market Bull market
Probability
0.2
0.5
0.3
Return on P
-20%
18%
50%
Assume that the risk-free rate is 9%, and the expected r
Assignment 3
Problem 1 (10 marks)
Three years ago, you purchased a bond for $974.69. The bond had three years to maturity,
a coupon rate of 8% paid annually, and a face value of $1,000. Each year you reinvested
all coupon interest at the prevailing reinve
Assignment 4
Instructions
Assignment 4 should be submitted after you have completed Unit 7. This assignment is
worth
15 percent of your final grade.
Assignment 4 contains six problems. The maximum mark for each problem is noted at
the beginning of the pro