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Test 2 Study Guide

by: Ashley Maggioli

Test 2 Study Guide MGMT 310

Marketplace > Purdue University > Music > MGMT 310 > Test 2 Study Guide
Ashley Maggioli
GPA 3.6
Financial Management
Tim Trombley

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About this Document

This is a study guide for test 2 of MGMT 310. Covers Stocks and Bond Valuations.
Financial Management
Tim Trombley
Study Guide
50 ?




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This 4 page Study Guide was uploaded by Ashley Maggioli on Thursday January 29, 2015. The Study Guide belongs to MGMT 310 at Purdue University taught by Tim Trombley in Fall2014. Since its upload, it has received 268 views. For similar materials see Financial Management in Music at Purdue University.


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Date Created: 01/29/15
MGMT 310 Test 2 Study Guide 5 multiple choice amp 7 workout problems 0 Bonds Bond ratings all based on default risk how likely is it for a bond to not be paid back Factors of bond yield Interest rate risk how susceptible is bond value to changing interest rates T increase risk increase coupon payment decrease risk increase Gov39t bonds Low risk low return rate interest payments are not taxed by the state Zero coupon bonds no coupon payments pure discount loan Floating rate bonds TIPS a oating rate bonds oats on in ation Became popular in 08 because the government printed Coupon payment coupon payment coupon rate F face value P par value present value 0 Yield to maturity What the rest of the market is doing r Coupon payments Bond Valuation Bringing bonds back to present value 0 Dividends Dividend yield Pt1Pt 0 Stock Valuation DCF method discounted cash ow method Taking all expected future cash ows and bringing them to PV Zero growth dividends are the same amount every year forever PO D1r l perpetuity Constant growth dividend changes by same amount every year Pt Dt1r g Dt DO1gquott Nonconstant orowth no pattern Multiple cash ows Individually take back to present value 0 Capital Gain Change in price Capital gains yield Pt1 Pt PM or newoldold r Dt1PO g r required return 0 Investment Income Income from investments 0 Risk Premium the return you expect when you invest on a rislq investment Er rp excess return 0 Dollar ReturnPercentage Return Total return initial share price Total return is selling price dividends share price you bought it for Expected Return Risk D volatility measured by standard deciation Increase of volatitliy increase in risk 2 types of risk systematic amp unsystematic systematic risk market risk l macroeconomic events unemployment GDP in ation foreign policy etc unsystematic risk rm risk l microeconomic events 1 rm or a group of rms diversi cation sprads our your risk Eliminate risk invest in 10 assets Beta risk A measure of systematic risk Standard risk is 1 So if beta is 2 then the investment is double as risky 0 Standard DeviationNariance ask during review session What is the difference between variance and standard deviation Standard deviation measures volatility 0 Portfolio analysis Investment weights D how much money you put into each asset Investment weights money in an assettotal money invested Expected Return in a recession weight of stock L of return in stock L during a recession weight of stock U of return in stock U during a recession Expected return of the portfolio probability of a recessionreturn in a recession probability of a boomreturn in a boom Varianceportfoio probability of a recession return during a recession expected return of portfolio probability of a boom return during a boom expected return of portfolio Thinqs to memorize DtD01gquott Ask for current or next dividend dividend in period 5 Current dividend DO Next dividend D1 Biggest area Ch 13 Expected return amp variance Know how to set up a portfolio returns rRh r real rate R nominal rate hin ann use this estimation equation on the exam If it ask for real returns make the appropriate alterations for r It is a cumulative nal YTM question only would ask for this equation PO FV1rquott Multiple choice focus on the equations amp the concepts behind the equanns What does each thing stand for How to they relate to each other What is dividends yield capital gains yield how do they relate to total return Standard deviation measures volatility amp risk


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