CORPORATE FINANCE QUIZ FOR EXAM
PREPARATION. 2024/2025 UPDATE
1. What is the IRR? Internal rate of return; what discount rate is required
to make the net present value of the investment opportunity equal to 0.
2. What is a yield curve? In finance, the yield curve is the relation
between the interest rate (or cost of borrowing) and the maturity of the
debt for a given borrower in a given currency. For example, the current
U.S. dollar interest rates paid on U.S.
Treasury securities for various maturities are closely watched by many
traders.
3. What is the term structure of interest rates? relationship between
investment term (interest rate that depend on the horizon of the loan)
and the interest rate. Can be plotted on a graph called yield curve.
4. Arbitrage: The practice of buying and selling equivalent goods
to take advantage of a price difference
5. Law of one price: If equivalent investment opportunities trade
simultaneously in different competitive markets, then they must trade
for the same price in both markets
6. 3 rules of time travel: 1. only values at the same point in time
can be compared or combined
2. to move a cash flow forward in time, you must compound it
3. to move a cash flow backward in time, you must discount it
7. yield curve: a graph of yield to maturity as a function of term to
maturity 8. Term structure: the relationship between the investment
term and the interest rate
9. Maturity date: the exact date the issuer of a bond must pay the
principal to the bondholder
10. bond Term: length of time until maturity
1 1. coupon: the stated interest payment made on a bond
12. Face Value: Amount of principal due at the maturity date of the bond
, CORPORATE FINANCE QUIZ FOR EXAM
PREPARATION. 2024/2025 UPDATE
13. coupon rate: the interest paid on a bond, expressed as a
percentage of the bond's par value
14. Coupon payment: CPN formula
15. PO > FV: at premium
16. PO = FV: at par
17. PO < FV: at a discount
18. Internal Rate of Return. how to use: the discount rate that makes the
NPV of an investment zero.
1. Turn down investement if IRR < Cost of Capital
1. Take investement if IRR > Cost of Capital
19. When does the IRR disagree with the NPV-ruIe?: 1. Delayed
investement
2. Nonexixing IRR
3. Multiple IRR
20. Payback Rule and Drawbacks: the length of time it takes to recover
our initial investment. Drawbacks
1 . Ignores cost of capital and time value of oney
2. Ignores cash flows after payback period
3. Relies on an ad-hoc decision criterion
21 . Incremental earnings: the amount by which a firm's earnings are
expected to change as a result of an investment decision
22. Sunk costs: costs that have already been incurred and cannot be
recovered.
Should not be included in the incremental earnings analysis.
23. Net working capital (NWC): cash + Inventories + receivables -
Payables 24. Types of analysis, explain:: 1. Break even: a method of
PREPARATION. 2024/2025 UPDATE
1. What is the IRR? Internal rate of return; what discount rate is required
to make the net present value of the investment opportunity equal to 0.
2. What is a yield curve? In finance, the yield curve is the relation
between the interest rate (or cost of borrowing) and the maturity of the
debt for a given borrower in a given currency. For example, the current
U.S. dollar interest rates paid on U.S.
Treasury securities for various maturities are closely watched by many
traders.
3. What is the term structure of interest rates? relationship between
investment term (interest rate that depend on the horizon of the loan)
and the interest rate. Can be plotted on a graph called yield curve.
4. Arbitrage: The practice of buying and selling equivalent goods
to take advantage of a price difference
5. Law of one price: If equivalent investment opportunities trade
simultaneously in different competitive markets, then they must trade
for the same price in both markets
6. 3 rules of time travel: 1. only values at the same point in time
can be compared or combined
2. to move a cash flow forward in time, you must compound it
3. to move a cash flow backward in time, you must discount it
7. yield curve: a graph of yield to maturity as a function of term to
maturity 8. Term structure: the relationship between the investment
term and the interest rate
9. Maturity date: the exact date the issuer of a bond must pay the
principal to the bondholder
10. bond Term: length of time until maturity
1 1. coupon: the stated interest payment made on a bond
12. Face Value: Amount of principal due at the maturity date of the bond
, CORPORATE FINANCE QUIZ FOR EXAM
PREPARATION. 2024/2025 UPDATE
13. coupon rate: the interest paid on a bond, expressed as a
percentage of the bond's par value
14. Coupon payment: CPN formula
15. PO > FV: at premium
16. PO = FV: at par
17. PO < FV: at a discount
18. Internal Rate of Return. how to use: the discount rate that makes the
NPV of an investment zero.
1. Turn down investement if IRR < Cost of Capital
1. Take investement if IRR > Cost of Capital
19. When does the IRR disagree with the NPV-ruIe?: 1. Delayed
investement
2. Nonexixing IRR
3. Multiple IRR
20. Payback Rule and Drawbacks: the length of time it takes to recover
our initial investment. Drawbacks
1 . Ignores cost of capital and time value of oney
2. Ignores cash flows after payback period
3. Relies on an ad-hoc decision criterion
21 . Incremental earnings: the amount by which a firm's earnings are
expected to change as a result of an investment decision
22. Sunk costs: costs that have already been incurred and cannot be
recovered.
Should not be included in the incremental earnings analysis.
23. Net working capital (NWC): cash + Inventories + receivables -
Payables 24. Types of analysis, explain:: 1. Break even: a method of
