Chapter 2 Multiple choice questions
1. A $1000 bond with a coupon rate of 10%, interest paid semiannually, matures in eight years
and sells for $1120. What is the yield to maturity?
a.
10.8%
b.
11.0%
c.
7.9%
d.
7.6%
2. A $1000 bond with an 8.2% coupon rat

Practice
Problems
What amount must be deposited today in an
account paying 6% per year, compounded
monthly in order to have $2000 in the
account after 5 years?
Jim makes a deposit of $12,000 in a bank account.
The deposit is to earn interest annually at t

Chapter 2: Interest rate
Annuity
1. What is an Annuity?
An annuity is any collection of equal payments made
at regular time intervals such as monthly, quarterly, or
annually over a finite period of time
If payments are made at the end of each period, the

Chapter 3: Financial Markets
1. Overview of Financial Markets
A financial market is a market in which financial assets
(securities) can be purchased or sold
Financial markets facilitate financing and investing by
households, firms, and government agencies

CHAPTER 4: INTRODUCTION TO CORPORATE FINANCE
PROFITABILITY
FORMULA
RATIOS
1.Gross
profit Gross
margin
profit/Sales(Revenue)
2.Operating
margin
profit Operating profit/Sales
(EBIT/Sales)
3.Net profit margin
NOTES
Should not be too low or too
high(not less

Chapter 2
Practice Problems - Annuity
Problem
1.
Suppose you would like to have $25,000 saved 6 years from
now to pay towards your down payment on a new house. If
you are going to make equal annual end-of-year payments
to an investment account that pays 7

An option contract gives its owner the right (not the obligation), to conduct a
transaction involving an underlying asset at a predetermined future date (the
exercise date) and at a predetermined price (the exercise price).
Options give the option buyer t

Chapter 5: Public Finance
Public Finance Defined
Public finance is the field of economics that studies government
activities and the alternative means of financing government
expenditures.
Public finance is about the taxing and spending activities of the

Chapter 2
Practice Problems Project
Appraisal Rules
Problem 1
Consider a five year investment whose cash flow
consequences are summarized below.
Cash Inflows: The investment will bring $300 cash inflow each
year, for years 1 - 5.
Cash outflows: The initia

4/23/2013
CHAPTER 2: INTEREST RATE
Objective
Explain the concept of interest rate
How we link the present to the future
Provide examples of real life
applications
1. TIME VALUE OF MONEY (TVM)
What is the value to you today of $100 paid to you in
the futur

5/4/2013
Chapter 2: Interest rate
Project Appraisal Rules
1. Payback Period
Payback Period = number of years to recover
initial costs
Computation
Estimate the cash flows
Subtract the future cash flows from the initial cost until
the initial investment has

5/1/2013
Chapter 2: Interest rate
Annuity
1. What is an Annuity?
An annuity is any collection of equal payments made
at regular time intervals such as monthly, quarterly, or
annually over a finite period of time
If payments are made at the end of each per

INTRODUCTION TO FINANCE
TRUE-FALSE QUESTIONS
1. All money market instruments are short-term debt
2. Commercial paper is more likely to be placed directly by large finance companies.
3. Bankers' acceptances are used primarily for financing international tr