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BFIN 300 MIDTERM QUESTIONS WITH COMPLETE SOLUTIONS GRADED A+
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BFIN 300 MIDTERM QUESTIONS WITH COMPLETE SOLUTIONS GRADED A+ pure discount loan - Answer-borrower receives money today, repays single lump sum in the future (treasury bill) interest only loan - Answer-borrower pays interest each period, repays entire principal in the future (corporate bond) ...

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  • October 9, 2024
  • 7
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • bfin 300
  • bfin 300 midterm questions
  • bfin 300 midterm questions with complete solutions

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  • BFIN 300
  • BFIN 300

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BFIN 300 MIDTERM QUESTIONS
WITH COMPLETE SOLUTIONS
GRADED A+

pure discount loan - Answer-borrower receives money today, repays single lump sum in
the future (treasury bill)

interest only loan - Answer-borrower pays interest each period, repays entire principal in
the future (corporate bond)

amortizing loan - Answer-lender requires borrower to repay a portion of the loan over
time plus interest each period (mortgage)

common stock - Answer-ownership in the business

debt security - Answer-periodic payments of interest and repayment of principal on
predetermined date

market clearing price - Answer-current price might be heavily influenced by temporary
supply and demand imbalance

who is the primary regulator of the securities market - Answer-securities exchange
commission

what does the SEC do - Answer-license securities professionals, collect public
disclosure info, enforce various securities laws

investment bank - Answer-works with issuers to distribute new securities. they take on
firm risk

stock brokerage firms - Answer-act as agents- buying and selling stocks on behalf of
clients

exchanges - Answer-formal organizations regulated by the SEC, typically physical
trading center location
money markets - Answer-transfer funds from market participants that have a short term
excess funds with people who have a short term need for funding

derivatives - Answer-security whose value is predicated on the value of another security

what is a financial security - Answer-contract between those that provide funds and
those that use funds - supplies all conditions

sukuk - Answer-debt security in islam, paying out interest is forbidden, debt market in
Malaysia. very illiquid, not widely accepted

, are debt or equity securities more uniform across corporations? - Answer-equity - they
are holders of business and have a say in operating decisions

preferred stock - Answer-cash flows are made after payments to debt holders- no
maturity

features of a bond - Answer-coupon, face value, coupon rate, maturity

coupon - Answer-stated interest payment on bond

face value/par value/par - Answer-amount repaid on a bond's maturity date

coupon rate - Answer-interest rate on a bond

maturity - Answer-# of years until the face value of a bond is repaid

annual coupon formula - Answer-interest / face value

if interest rates increase, does the PV of a bond's cash flows increase or decrease -
Answer-decrease

yield to maturity formula - Answer-coupon / bond's market price

interest rate risk - Answer-how sensitive a bond's price is to interest rate changes
(longer maturity = higher interest rate risk)

nominal interest rate - Answer-not adjusted for inflation

if there is more short term than long term interest rates, the yield curve is - Answer-
downward sloping

inflation - Answer-erodes value of money to be returned


bonds usually have a maturity of - Answer-30 years

bond indenture - Answer-written agreement between corporation and lender

call provisions - Answer-allows company to buy back the bond

protective covenants - Answer-prevents the borrower from using their funds for certain
things
debt rating agency - Answer-assessment of credit worthiness of the bond, likelihood to
default

AAA debt rating - Answer-high grade security

BBB or lower debt rating - Answer-JUNK, below investment grade

government bonds - Answer-issues are exempt from state income tax, no default risk

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