FIN 4501 Final Exam This exam counts 250 points toward your grade. Sections 1 and 2 are worth 75 points each sections 3 and 4 are worth 50 points each. Name ____________ Date _________ Please answer 15 of the following 25 questions in this section. Please explain all answers! Do not just put down facts. A minimum of 2-3 sentences to get credit but do not go over 5 sentences, any answers over 5 sentences will receive 0 points! 1. 2. 3. 4. Define margin requirement for purchasing stock? What is the key effect of having a 50% margin requirement? (it is very simple). What does it mean to be long a stock bond or futures position? What is the rule of 72?. 5. What is are load and no-load mutual funds? 6. Describe a basis point and how to properly express 25 basis points in decimal format? 7. Name the four arguments used in Excel for solving time value of money problems such as payment? Write the formula for future value with present value format then present value with future value. Explain this relationship? 9. Describe the yield curve and why it is important? 10. What are three potential shapes of the yield curve? 11. Describe CAPM and how it used in finance? 12. Describe the primary market for stocks and the key players? 13. Describe the secondary market for stocks and the key players. 14. Describe the role of investment bankers? 15. Why are U.S. government bonds considered risk free? 16. Explain a stock split and why companies do them? 17. What are the dogs of the Dow? 18. What are they key risks with holding a non-government (risky) bond? 19. Describe an option contract and the 5 key parameters in their valuation? 20. What is a call and put? How can they be used by investors? 21. What is behavioral finance? 22. What are some technical indicators that are broadly talked about in the popular press? (Think the main page in Yahoo/finance) 23. What is effective duration of bond? 24. What are the policy instruments available to the Fed for monetary policy? 8. Exam One / Essay Questions / Please answer five of the following essay questions. Do not just state facts. Explain the interaction of the facts briefly. You should have a minimum of 2-3 paragraphs with 4-5 sentences. Be clear but brief! Any answer over 4 paragraphs with more than 6 sentences each will receive 0 credit. Finance 4501 Final Exam 1 1. A stock can be held in long or short position. What are the effects of each position and what are the best and worst case scenarios for being in these positions. 2. Describe behavioral finance. 3. Describe fundamental and technical analysis, compare and contrast. 4. Discuss the role that trading volume/open interest play in valuation of asset pricing? Can low trading volume influence a large block trade? 5. Discuss systematic and unsystematic risk, which can be diversified and why? Also discuss some measures of systematic risk and how they can be used to maximize returns and minimize risk. 6. Discuss the major assumptions behind SML and beta. How do these measures help in building a diversified portfolio of investments that maximizes return and minimizes risks? 7. Describe the risk return relationship and the different risk measures. Why are these important in constructing a diversified portfolio? 8. Explain the components of the dividend discount model (key drivers) and why it can be solved as perpetuity? 9. How would you describe investing in stocks and bonds to your granny? 10. Describe the key characteristics of stocks and bonds and contrast a couple of key characteristics that make them so different? How are each valued? 11. Describe preferred stock and its general characteristics. What are some of the key difference between common and preferred stocks? 12. Describe efficient markets and the three different forms of them. Do you think the markets are efficient? If so to what degree and explain your reasoning. 13. What are mutual funds, describe the different types and why they differ? What is the difference between closed end mutual fund (EFT) and an open-ended mutual fund? How do mutual funds benefit investors within the context of portfolio theory and diversification? 14. How might mutual funds address systematic and unsystematic risk? What type of mutual funds would you buy (load/no-load) and Explain the differences. 15. How do the actions of the Federal Reserve and the economy in general affect the performance of common stock? (Be thorough Exam One / Short Answers: please answer all of these questions! 1. Portfolio theory indicates that diversification can maximize _____and minimize _____? 2. What is worth more, a dollar today or tomorrow? __________ 3. Discount rate brings ______money to present 4. __________is firm specific risk? Finance 4501 Final Exam 2 5. Beta equal to_____will move exactly like the market index? 6. ______ Analysis uses the historic price and volume patterns to predict future stock movements. 7. ________ bonds are offered by state and local governments? 8. ________ preferred pays all dividends in the rear that might have been skipped. 9. When advances are higher than declines, advance/decline indicator, this is a _____ sign for the stock market. 10. How many votes does a preferred stock get compared to common stock ____? 11. ____is the stated amount paid at maturity by the bond issuer? 12. A ____ provision allows the bond issuer to receive back the bond before maturity? 13. Point and figure charts with X/Os are used in _______. 14. __________is the rate of return for holding a bond purchased at current market price if held to maturity? 15. ADRs stand for __________ 16. The two filings that all public companies must make each year and each quarter are the ________ and ___________. 17. The five determinates of an options value are _______________________. 18. Less required margin to buy a stock means more___ and ___ return on equity. 19. Stocks are valued by discounting all future _______ 20. As a relative measure of price sensitivity, or the change in the change of the price, only ______securities have this asymmetric characteristic. 21. The two keys in valuing bonds are ____and ____ factor. 22. Short sales increasing is a _____ indicator. 23. How many stocks are in the Dow jones industrial __ ? 24. Selective memory describes _______? Finance 4501 Final Exam 3 25. Following a trend and others in financial decision making is behavior characteristic of _____ mentality. Finance 4501 Final Exam 4