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Keen Finance 3101 Exam 1 with Verified Test 100% Correct Answers, Exams of Finance

Keen Finance 3101 Exam 1 with Verified Test 100% Correct Answers

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2024/2025

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Keen Finance 3101 Exam 1 with Verified
Test 100% Correct Answers.
1. What are the 3 main determinants of stock prices and how does
each affect the stock price? - Correct Ans: ✔✔
1) future cash flows
2) timing of cash flows
3) risk
2. What is meant by "Primary" and "Secondary" markets? - Correct
Ans: ✔✔primary: when a company offers stock for the first time
3. secondary: the reselling of stocks or bonds to another party (exp.
New York Stock Exchange)
4. Why do we need to learn Time Value of Money (TVM) tools? -
Correct Ans: ✔✔to understand a dollar in hand today is worth
more than a dollar tomorrow (in the future)?
5. What is the meaning of PV and FV? - Correct Ans: ✔✔Present
value and future value
6. What is involved with discounting and compounding? - Correct
Ans: ✔✔Discounting: the process of determining the present
value of the amount to be received in the future
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Download Keen Finance 3101 Exam 1 with Verified Test 100% Correct Answers and more Exams Finance in PDF only on Docsity!

Keen Finance 3101 Exam 1 with Verified

Test 100% Correct Answers.

  1. What are the 3 main determinants of stock prices and how does each affect the stock price? - Correct Ans: ✔✔  1) future cash flows  2) timing of cash flows  3) risk
  2. What is meant by "Primary" and "Secondary" markets? - Correct Ans: ✔✔primary: when a company offers stock for the first time
  3. secondary: the reselling of stocks or bonds to another party (exp. New York Stock Exchange)
  4. Why do we need to learn Time Value of Money (TVM) tools? - Correct Ans: ✔✔to understand a dollar in hand today is worth more than a dollar tomorrow (in the future)?
  5. What is the meaning of PV and FV? - Correct Ans: ✔✔Present value and future value
  6. What is involved with discounting and compounding? - Correct Ans: ✔✔Discounting: the process of determining the present value of the amount to be received in the future

Compounding: method is used to know the future value of present money.

  1. What is the difference between simple and compound interest? - Correct Ans: ✔✔simple interest is only paid on principal, while compound interest is paid on the principal plus all of the interest that has previously been earned
  2. What is meant by a "lump sum"? - Correct Ans: ✔✔a single payment made at a particular time
  3. For lump sums, how do you solve for PV, FV, r and n? - Correct Ans: ✔✔FV=PV(1+r)^n
  4. What are the 3 things that a time line shows - Correct Ans: ✔✔Present value, future value, and total elapsed time
  5. How does the PV formula embody the 3 key factors determining stock prices? - Correct Ans: ✔✔  FV reflects future cashflows  n reflects timing  r reflects risk

 borrower: penalty for spending before earning

  1. What is meant by the periodic interest rate, APR, frequency of compounding and EAR? - Correct Ans: ✔✔ o Periodic interest rate: interest rate for whatever period were talking about o APR: annual percentage rate o Frequency of Compounding: how often does the interest get charged or credited to an account EAR: rate you would have to earn in one year to match compound rate
  2. Nominal Interesest Rate - Correct Ans: ✔✔The actual rate at which money will grow. Nominal rates are typically stated in loan agreements and quoted in financial markets. If prices in the economy are also growing due to inflation, the nominal interest rate does not represent the increase in purchasing power that will result from investing at the nominal rate.
  3. real interest rate - Correct Ans: ✔✔The rate of growth of purchasing power after adjusting for inflation
  1. What does the Fisher Effect show? - Correct Ans: ✔✔it shows the relationship between real and nominal interest rates and inflation R Nominal = R Real + R Inflation
  2. How do current interest rates compare to those in the late 1970s-early 1980s and what accounts for the difference? - Correct Ans: ✔✔inflation rates were much higher
  3. ceteris paribus - Correct Ans: ✔✔"holding everything else constant"
  4. How do you solve for the price of a bond? - Correct Ans: ✔✔Bond Price (PB) = Coupon PMT [(1 - 1/(1 + r)^n) / r] + Par / (1 + r)^n
  5. Annuity - Correct Ans: ✔✔A series of equal payments at fixed intervals for a specified number of periods.
  6. Perpetuity - Correct Ans: ✔✔A stream of equal payments at fixed intervals expected to continue forever.
  7. Uneven Cash Flows - Correct Ans: ✔✔A series of cash flows where the amount varies from one period to the next.
  1. YTM - Correct Ans: ✔✔Yield to Maturity: the rate of return earned on a bond if it is held to maturity
  2. T/F: According to the Order of Operations, exponents are applied before the expression in parentheses, and addition and subtraction are to be completed before multiplication and division. - Correct Ans: ✔✔False
  3. T/F: A simple percent change represents a change as part of the old or earlier value. - Correct Ans: ✔✔True
  4. T/F: to change a decimal value to a percent, divide by 100 - Correct Ans: ✔✔False
  5. T/F: In a Normal Distribution, there is a 68% chance that an actual return will exceed the average return plus one standard deviation. - Correct Ans: ✔✔False
  6. T/F: For a given mean, a larger standard deviation means that actual returns that are far from the mean are less likely to occur. - Correct Ans: ✔✔False
  7. T/F: If the top of a fraction is unchanged and the bottom of a fraction decreases by 5%, then the value of the whole fraction would increase by approximately 5% - Correct Ans: ✔✔True
  1. T/F: the capital budgeting area deals with how the firm should be financed - Correct Ans: ✔✔false
  2. T/F: FVs are earlier values and PVs are later values - Correct Ans: ✔✔False
  3. T/F:The working capital management area deals with how much of a firm's assets should be held in cash, inventory and accounts receivable. - Correct Ans: ✔✔True
  4. T/F: PVs are leftward on a time line and FVs are rightward on the time line - Correct Ans: ✔✔true
  5. T/F: The goal of the corporate financial manager is to maximize the firm's market share. - Correct Ans: ✔✔false
  6. T/F: FVs represent the amount that an earlier amount will grow into. - Correct Ans: ✔✔True
  7. T/F: Compounding is the process used to find a PV - Correct Ans: ✔✔False
  1. T/F: Annuities are unequal cash flows that go on for a finite period of time. - Correct Ans: ✔✔False
  2. T/F: When given the annual withdrawals desired during the retirement period, the FVA tells us the amount we should have accumulated by the time we begin the retirement period. - Correct Ans: ✔✔False
  3. T/F: The principal part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period. - Correct Ans: ✔✔False
  4. T/F: We can find the amount needed to pay off a fixed-rate fully amortized mortgage loan at any point in time by solving for the PV of the remaining payments. - Correct Ans: ✔✔True
  5. True or False: The penalty for spending before earning is the interest rate from the point of view of the borrower. - Correct Ans: ✔✔true
  6. T/F: We've discussed 3 different multiple cash flow patterns.
    • Correct Ans: ✔✔True
  1. True or False: The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates. - Correct Ans: ✔✔true
  2. True or False: Ceteris paribus, as the frequency of compounding decreases, the EAR will exceed theAPR by greater and greater amounts. - Correct Ans: ✔✔False increases
  3. T/F: We can determine which "PMT" we're being asked to solve for by noting what the problem provides in terms of r and n.
    • Correct Ans: ✔✔False
  4. True or False: The EAR will always be greater than the APR. - Correct Ans: ✔✔False
  5. periodic rate is always greater than APR
  6. True or False: We can find the nominal interest rate by dividing the default and maturity premiums from the sum of the real rate and inflation. - Correct Ans: ✔✔False
  7. subtracting, not dividing
  1. T/F: For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards principal as we approach the end of the loan term. - Correct Ans: ✔✔true
  2. What is the "Cycle of Money" between investors and a corporation? - Correct Ans: ✔✔the movement of money from lender to borrower and back again.
  3. What are the 3 areas of corporate financial management decision making? - Correct Ans: ✔✔
    1. Capital Budgeting: choosing long-term investments to take on
    2. Capital Structure: getting long-term financing to pay for investments
    3. Working Capital Management: managing everyday activities of the firm
  4. What is the overriding goal of corporate financial management and what are 3 ways of describing this goal? - Correct Ans: ✔✔To maximize wealth of owners, take holders
    1. maximize price of common stock
    2. maximize market value of company equity
  1. True or False: Premium bonds are always worth more than par value at maturity. - Correct Ans: ✔✔false
  2. True or False: The YTM on a discount bond will be above its coupon rate. - Correct Ans: ✔✔true
  3. True or False: Prior to maturity, discount bonds always sell for less than par value. - Correct Ans: ✔✔true
  4. True or False: You can earn a higher return by purchasing zero-coupon bonds at a premium. - Correct Ans: ✔✔false
  5. True or False: If you buy a bond at par and hold it to maturity, you will experience a capital gain. - Correct Ans: ✔✔false
  6. buy a bond at discount
  7. True or False: If you purchase a $1,000 par value bond for $1,050 and hold it to maturity, you would experience a capital gain on the bond equal to 5-percent. - Correct Ans: ✔✔false