CHAPTER 5
How can you use the present value of an annuity concept to determine the price of a house you can afford?
Use the idea of compound interest to explain why EAR is larger than APR.
The interest on your home mortgage is tax deductible. Why are the early years of the mortgage more helpful in reducing taxes than in the later years?
CHAPTER 6
Classify the following financial instruments as money market securities or capital market securities:
a. Federal Funds – money market security
b. Common Stock – capital market security
c. Corporate Bonds – capital market security
d. Mortgages – capital market security
e. Negotiable Certificates of Deposit – money market security
f. U.S. Treasury Bills – money market security
g. U.S. Treasury Notes – capital market security
h. U.S. Treasury Bonds – capital market security
i. State and Government Bonds – capital market security
What are the different types of financial institutions? Include a description of the main services offered by each.
WHAT ARE THE SIX FACTORSTHAT DETERMINE the nominal interest rate on
| Inflation. | ||
| • | The real interest rate. | |
| • | Default risk. | |
| • | Liquidity risk. | |
| • | Special provisions regarding the use of funds raised by a particular security issuer. | |
| • | The security’s term to maturity.
Determine |
CHAPTER 7
Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semi-annually), 4.25 percent coupon Treasury note,
LG1 and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)
3 ½ percent coupon corporate bond (paid semi-annually): ½ × 3.5% × $1,000 = $17.50
4.25 percent coupon Treasury note: ½ × 4.25% × $1,000 = $21.25
corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0
A bond issued by IBM on December 1, 1996 is scheduled to mature on December 1, 2096. If today is December 2. 2013, what is this bonds time to maturity.
December 1, 2096 mins December 2, 2013 = 83 years.
CHAPTER 8
As owners, what rights and advantages do shareholders obtain?
What are the differences between common stock and preferred stock?
Under what conditions would the constant growth rate model not be appropriate?