Exam (elaborations)
FIN 400 Final Exam Questions And Answers Latest Update
- Course
- FIN 400
- Institution
- University Of Illinois - Urbana-Champaign
FIN 400 Final Exam Questions And Answers Latest Update
[Show more]
Content preview
2024/2025FIN 400/ Final Exam Questions
And Answers Latest Update
Why consider bonds? ANS✔✔ 1. Reduce risk through diversification
2. Produce steady income
3. Can be a safe investment if held to maturity
4. Interest rates decrease= bond prices increase
Why to NOT consider bonds? ANS✔✔ 1. Interest rates increase= bond prices decrease
2. Issuer have financial problems; bondholder's may pay
3. Callable: Interest rates decrease= bond is called
4. May have a problem selling bonds early, unreasonable prices
5. Difficult to find an investment outlet for interest received.
Indenture ANS✔✔ A legal document that provides specific terms of the loan
Indenture includes: ANS✔✔ 1. Bond description
2. Bondholder's rights
3. Issuing firms rights
4. Bond trustee's responsibilities
Treasury & agency bonds are: ANS✔✔ 1. Risk-free
2. Not callable
3. Lower interest rate
4. Interest payment exempt from state and local taxes
Treasury Inflation-Protected Securities (TIPS) ANS✔✔ Par value of bond increases with consumer
price index to guarantee investor a real rate of return
, 2024/2025
Muni's (municipal bonds) ANS✔✔ Issued by states, counties, cities, public agencies e.g. school
districts.
Zero Coupon Bonds ANS✔✔ Don't pay interest and are sold at a deep discount from their par
value
Junk Bonds ANS✔✔ High-yield bonds, very risky, low-rated BB or below
Current Yield ANS✔✔ Ratio of annual interest payment to the bond's market price
Yield to Maturity (YTM) ANS✔✔ True yield or return that the bondholder receives if a bond is
held to maturity- measures of expected return
Valuation Principle 3 ANS✔✔ Time value of money
Valuation Principle 8 ANS✔✔ Risk and return go hand-in-hand
Bond Valuation ANS✔✔ Present value of the interest payments plus the present value of the
repayment of the bond's par value at maturity.
Invoice Price ANS✔✔ sum of the quoted or stated price of a bond and the bond's accrued interest-
price of bond on secondary market
Value of Preferred Stock ANS✔✔ = Annual preferred stock dividend/ Required rate of return
Preferred Stock ANS✔✔ A security with no fixed maturity date and with dividends that are
generally set in amount and don't fluctuate.
Ginnie Mae ANS✔✔ Pass-through certificates issued by the Government National Mortgage
Association, a.k.a:
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Schoolflix. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $14.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
73216 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now