Essay Examination 1
These questions are from the test bank. An "A" answer requires at least three or four intelligent sentences. Some questions may require more sentences if they have multiple parts.
Lecture 1 - Overview of Corporations
1. (a) What are three benefits of a corporation?
2. (a) What is the difference between common stock and preferred stock?
3. (a) What are two goals of a corporation?
4. (a) What is the principal agent problem? Why do corporations have more problems with the principal agent problem?
5. (a) What are two goals of a corporation?
Lecture 2 - Financial Markets and Institutions
6. (a) What is a mutual fund?
7. (a) What is the difference between a money market and capital market?
8. What are the three types of securities that the U.S. Treasury Department issues?
9. What is the difference between an organized exchange and the Over-the-Counter (OTC) market?
10. (a) What are three functions of the financial system?
11. (a) What is the yield curve?
Lectures 4 - Time Value of Money
12. You bought a share of stock for $20. You sold your shares three years later for $80. What is your annual rate of return?
13. You have an overseas trust account. You expect the following annual payments and exchange rates.
14. (a) You deposit $1,000 into a savings account that earns 6% APR interest and is compounded monthly. How much will your savings grow in 10 years?
Lectures 5 - Valuation of Bonds
15. Please quickly define the following bonds?
16. You bought a discount bond for $4,500. The face value is $5,000. If the bond matures in 3 months, what is your yield-to-maturity (YTM)?
17. What is the market value of your bond, if your bond has the following characteristics?
(i) Face value is $1,000
Lectures 6 - Valuation of Stocks
18. (a) Identify the problems of a stock market crash and its impact on an economy.
19. (a) What is insider trading?
20. (a) Some internet and brand new companies do not pay dividends. How could we update our valuation formula to include investment and earnings?