TCU Finance Exit Exam Questions With
Correct Answers
Calculate the present value or future value of a lump (single) sum. - CORRECT
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ANSWER✔✔-o PV = FV / (1+i)^n | | | | |
o FV = PV(1+i)^n
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Find number of periods or interest rate for lump sum cash flow if given PV and FV
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- CORRECT ANSWER✔✔-Calculator time(see above relationships)
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Calculate PV or FV of an annuity and of an annuity due - CORRECT ANSWER✔✔-
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Remember to set TVM: PMT:end/beginning
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If solving for FV, set PV to 0
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If solving for PV, set FV to 0
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PMT=annual payment |
FV=0 or solve for
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i=market rate |
PV=0 or solve for
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Find PMT, interest rate, or number of payments in annuity or annuity due
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problem with annual or non-annual payments - CORRECT ANSWER✔✔-
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Remember to adjust for non-annual payments
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,Find the PV, PMT, or interest rate for a perpetuity - CORRECT ANSWER✔✔-
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Perpetuity: PV=PMT/interest rate | |
Calculate the effective annual rate for an interest rate compounded more than
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one time per year - CORRECT ANSWER✔✔-o ((1+ i/n)^n) - 1
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o I = stated annual interest rate
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o N = number of periods
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Prepare a loan amortization table - CORRECT ANSWER✔✔-Monthly payment:
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Calculator: solve for PMT using PV=principal and FV=0
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Pay attention to annuity or annuity due
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For each payment, multiply interest rate times remaining principle to determine
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interest portion of payment. The remaining amount goes towards principle.
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Understand the effect of time and interest rate on present and future values of a
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cash flow - CORRECT ANSWER✔✔-• The further out in time, the less the PV
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becomes
• The higher the discount rate, the lower the PV becomes
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Calculate the price of a bond - CORRECT ANSWER✔✔-o PV of interest payments
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-Find annual coupon rate, or semiannual
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-Find semiannual discount rate, or the bonds with similar maturities
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-Multiple time to maturity by 2 | | | | |
o PV of principal amount
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, Calculate the yield to maturity of a bond - CORRECT ANSWER✔✔-o The yield to
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maturity is the discount rate that equates the bond's current price with its stream
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of promised future cash flows.
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o On calculator, solve for I/Y, and then multiply by two if semiannual to get
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annual yield |
Understand the impact of time to maturity on changes in bond prices as yield
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changes (check) - CORRECT ANSWER✔✔-o A longer term bond needs to have a
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higher interest rate to be valuable due to more risk; also, as a bond approaches
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maturity, its price will converge with its face value
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o When interest rates rise, the price of outstanding bonds fall. When interest
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rates fall, the price of outstanding bonds rise
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*A change in yield produces a bigger change in a 10bond vs a 5 year note
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Explain bond duration - CORRECT ANSWER✔✔-o The weighted average period of
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time before the price of a bond is repaid by its cash flows. Zero-coupon bond
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duration=its time to maturity. | | |
o Importance is that it predicts how sharply the market price of a bond will
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change as a result of changes in interest rates(or other factors of volatility)
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Calculate the price of preferred stock - CORRECT ANSWER✔✔-The price of
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preferred stock = preferred dividend / required return on the stock
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Calculate the expected return of preferred stock (check this) - CORRECT
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ANSWER✔✔-expected return = preferred dividend/price of the preferred stock | | | | | | | |
Correct Answers
Calculate the present value or future value of a lump (single) sum. - CORRECT
| | | | | | | | | | | | | |
ANSWER✔✔-o PV = FV / (1+i)^n | | | | |
o FV = PV(1+i)^n
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Find number of periods or interest rate for lump sum cash flow if given PV and FV
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- CORRECT ANSWER✔✔-Calculator time(see above relationships)
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Calculate PV or FV of an annuity and of an annuity due - CORRECT ANSWER✔✔-
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Remember to set TVM: PMT:end/beginning
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If solving for FV, set PV to 0
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If solving for PV, set FV to 0
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PMT=annual payment |
FV=0 or solve for
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i=market rate |
PV=0 or solve for
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Find PMT, interest rate, or number of payments in annuity or annuity due
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problem with annual or non-annual payments - CORRECT ANSWER✔✔-
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Remember to adjust for non-annual payments
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,Find the PV, PMT, or interest rate for a perpetuity - CORRECT ANSWER✔✔-
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Perpetuity: PV=PMT/interest rate | |
Calculate the effective annual rate for an interest rate compounded more than
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one time per year - CORRECT ANSWER✔✔-o ((1+ i/n)^n) - 1
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o I = stated annual interest rate
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o N = number of periods
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Prepare a loan amortization table - CORRECT ANSWER✔✔-Monthly payment:
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Calculator: solve for PMT using PV=principal and FV=0
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Pay attention to annuity or annuity due
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For each payment, multiply interest rate times remaining principle to determine
| | | | | | | | | | |
interest portion of payment. The remaining amount goes towards principle.
| | | | | | | | |
Understand the effect of time and interest rate on present and future values of a
| | | | | | | | | | | | | | |
cash flow - CORRECT ANSWER✔✔-• The further out in time, the less the PV
| | | | | | | | | | | | | |
becomes
• The higher the discount rate, the lower the PV becomes
| | | | | | | | | |
Calculate the price of a bond - CORRECT ANSWER✔✔-o PV of interest payments
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-Find annual coupon rate, or semiannual
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-Find semiannual discount rate, or the bonds with similar maturities
| | | | | | | | |
-Multiple time to maturity by 2 | | | | |
o PV of principal amount
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, Calculate the yield to maturity of a bond - CORRECT ANSWER✔✔-o The yield to
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maturity is the discount rate that equates the bond's current price with its stream
| | | | | | | | | | | | |
of promised future cash flows.
| | | | |
o On calculator, solve for I/Y, and then multiply by two if semiannual to get
| | | | | | | | | | | | | | |
annual yield |
Understand the impact of time to maturity on changes in bond prices as yield
| | | | | | | | | | | | | |
changes (check) - CORRECT ANSWER✔✔-o A longer term bond needs to have a
| | | | | | | | | | | | |
higher interest rate to be valuable due to more risk; also, as a bond approaches
| | | | | | | | | | | | | | |
maturity, its price will converge with its face value
| | | | | | | |
o When interest rates rise, the price of outstanding bonds fall. When interest
| | | | | | | | | | | | |
rates fall, the price of outstanding bonds rise
| | | | | | |
*A change in yield produces a bigger change in a 10bond vs a 5 year note
| | | | | | | | | | | | | | |
Explain bond duration - CORRECT ANSWER✔✔-o The weighted average period of
| | | | | | | | | | |
time before the price of a bond is repaid by its cash flows. Zero-coupon bond
| | | | | | | | | | | | | | |
duration=its time to maturity. | | |
o Importance is that it predicts how sharply the market price of a bond will
| | | | | | | | | | | | | | |
change as a result of changes in interest rates(or other factors of volatility)
| | | | | | | | | | | |
Calculate the price of preferred stock - CORRECT ANSWER✔✔-The price of
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preferred stock = preferred dividend / required return on the stock
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Calculate the expected return of preferred stock (check this) - CORRECT
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ANSWER✔✔-expected return = preferred dividend/price of the preferred stock | | | | | | | |
