FIN 3403 REVIEW QUESTIONS AND PROBLEMS

The Final Exam consists of the following:

15 short problems5 points each75 points

5 short answer3 points each15 points

5 true false questions2 points each10 points

This exam is cumulative. While there will be somewhat more emphasis on financial performance, stock and bond valuation, you should expect questions using TVM, leverage, WACC and capital budgeting.

  1. Answer questions 7-1 to 7-14 in text pp. 275-6
  2. Why will a corporate treasurer call a bond issue for redemption prior to maturity?
  3. If a bond price is above par, will current yield exceed YTM or the reverse? Why?
  4. What are the four key inputs in the DDM you used for your company?

g

I/y

Payout

EPS T1

  1. Explain the constant growth stock valuation model in the text p. 297
  2. List 3 rights of common stockholders.
  3. Define cumulative voting and explain with an example.
  4. Complete ratio analysis questions on pp. 16-17 of your lecture notes. Ask questions if any part of these problems is unclear.
  5. Review bond / stock valuation notes in lecture notes pp. 34-36, 38-9

BOND WORKSHEET

NOTE: Bonds are quoted in the paper as a percent of par. Par is $1000. A quoted price of 100 means 100% of par or $1000. A price of 92 = $920. All inputs in bond worksheet (including accrued income) are in % of par.

  1. See p. 12 lecture notes

SDT for corporate securities (stock, pfds and bonds) is 3 business days.

RDT is either maturity or call date

CPN is stated interest rate (enter 7.25% as 7.25)

RV is the redemption value. If the bond matures, RV is always entered as 100% of par (enter 100)

ACT = 365 day year. This setting is used for all corporate bonds.

2/Y = semiannual coupon for all corporate bonds

YLD = Yield to maturity or yield to call. If solving for PRI, enter the yield on bonds of similar type, quality and maturity in this spot. If you are solving for YTM, skip over this, enter price, come back to YLD and press the CPT key.

PRI = price of bond which is equal to the PV of the coupon income received semiannually and the lump sum of $1000 received at maturity. If solving for price, enter all the inputs above go to price and enter CPT.

a. Try solving the problem in your workbook on p. 12 assuming a SDT of 6.3097.

  1. Assume this bond is called on 12.0511 at a price of 103. Calculate YTC (yield to call). SDT is the same. RV is now 103 and RDT must be adjusted. SOLVE for YLD.
  1. ANSWERS TO CH 7 BOND problems using TVM keys 7-1A TO 7-5A set end

On exam all bonds will be semi-annual pay (P/y = 2)

7-1A P/Y = 1 N = 12 I/Y = 12PMT = 80 FV = 1000SOLVE FOR PV =-752.22

7-2A P/Y = 2 N = 16 I/Y = 8 PMT = 45 FV = 1000PV = -1058.26

7-3A P/Y = 2 N = 20 PV = -900 PMT = 40 FV = 1000 SOLVE FOR I/Y =9.576%

7-4A P/Y = 1 N = 20 PV = -945 PMT = 90 FV = 1000 I/Y = 9.63%