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FIN 433 Study Guide: Simple Questions You Should Know The Answers To

This document provides study guides for Chapters 8, 9, and 10 which include lists of simple questions to know the answers to for each chapter as well as topics that need and do not need to be studied from the textbook. For Chapter 8, questions cover bond valuation, yields, and factors affecting risk-free rates. For Chapter 9, questions define mortgage terms and types and ask about mortgage risks and the credit crisis. Chapter 10 questions cover public versus private equity, the IPO process, equity indexes, and terms such as residual claims and road shows.

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Fariha Farjana
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205 views3 pages

FIN 433 Study Guide: Simple Questions You Should Know The Answers To

This document provides study guides for Chapters 8, 9, and 10 which include lists of simple questions to know the answers to for each chapter as well as topics that need and do not need to be studied from the textbook. For Chapter 8, questions cover bond valuation, yields, and factors affecting risk-free rates. For Chapter 9, questions define mortgage terms and types and ask about mortgage risks and the credit crisis. Chapter 10 questions cover public versus private equity, the IPO process, equity indexes, and terms such as residual claims and road shows.

Uploaded by

Fariha Farjana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

FIN 433 study guide

Chapter 8

Simple questions you should know the answers to:


1. If the annual coupon payments are $65 and the face value of a bond is $1,000, what is its coupon
rate?
2. A bond has a $1,000 face value and provides a 10% annual coupon for 20 years. The appropriate
discount rate is 5%. What is the value of the bond?
3. A bond has a $1,000 face value and provides an 8% semi-annual coupon for 10 years. The
appropriate discount rate is 12% (annual rate). What is the value of the coupon bond?
4. A bond has a $1,000 face value and a 10-year life. The appropriate discount rate is 8%. What is
the value of the zero-coupon bond?
5. A bond has a $1,000 face value and provides a 6% coupon. The appropriate discount rate is 5%.
What is the value of the perpetual bond?
6. A bond has a $1,000 face value and provides a 10% coupon. It has 10 years left to maturity. The
current market value of the bond is $1,500. What is its yield to maturity?
7. A 15-year bond has a yield to maturity of 7 percent and a coupon rate of 10 percent. The current
price of this bond is $1,275. If the yield to maturity increases to 9 percent, the new price of the
bond is $1,080. What is this bond’s bond price elasticity?
8. A bond has two years remaining to maturity, a $1,000 face value, a 9 percent coupon rate, and a
12 percent yield to maturity. What is the duration of this bond?
9. A bond has two years remaining to maturity, a $1,000 face value, a 10 percent coupon rate,
and an 8 percent yield to maturity. What is the modified duration of this bond? Interpret
the modified duration for this bond.
10. How do the following factors affect the risk-free rate: inflationary expectations, economic
growth, money supply, budget deficit?

Topics you need to study:


Read all the topics covered in the slides, as well as the chapter from your textbook, except for the topics
mentioned below.

Topics you do not need to study from the book:

 Valuation and Risk of International Bonds


 Influence of Foreign Interest Rate Movements
 Influence of Credit Risk
 Influence of Exchange Rate Fluctuations
 International Bond Diversification

Page 1 of 3
FIN 433 study guide

Chapter 9

Simple questions you should know the answers to:


1. What is a subprime mortgage? How is it different from a prime mortgage?
2. What is an insured mortgage? How is it different from a traditional mortgage?
3. What is an adjustable-rate mortgage? How is it different from a fixed-rate mortgage?
4. What are the risks involved in investing in mortgages? How can an investor limit his risk
exposure?
5. Why was there a mortgage credit crisis? Who is to blame for the crisis?
6. Define the following terms: mortgage, balloon payments, amortization, graduated-
payment mortgages, growing-equity mortgages, shared-appreciation mortgages,
securitization, mortgage-backed securities, collateralized mortgage obligations,
collateralized debt obligations.

Topics you need to study:


Read all the topics covered in the slides, as well as the chapter from your textbook, except for the topics
mentioned below.

Topics you do not need to study from the book:

 FHLMA Participation Certificates


 Valuation of Mortgage-Backed Securities

Page 2 of 3
FIN 433 study guide

Chapter 10

Simple questions you should know the answers to:


1. How is public equity different from private equity?
2. Why do companies have IPOs?
3. Describe the IPO process.
4. Name two VC funds and two PE funds.
5. Name two companies financed by VC funds and two financed by PE funds.
6. Discuss the exit strategy of PE and VC funds.
7. Discuss the differences between common stock and preferred stock.
8. Describe, with a numerical example, how a price-weighted and a value-weighted index is
created. Assume the first day value of the index to be 10,000 points.
9. Discuss Google’s IPO process.
10. Define the following terms: residual claim, prospectus, road show, fixed-price method,
bookbuilding, lockup provision, bull market, bear market, spinning, laddering, stock market
index.

Topics you need to study:


Read all the topics covered in the slides, as well as the chapter from your textbook, except for the topics
mentioned below.

Topics you do not need to study from the book:

 Impact of the Sarbanes-Oxley Act on IPOs


 Methods used to invest in foreign stocks

Page 3 of 3

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