Economics Exam Review: CAPM, Bonds, Equity Valuation, Options, Futures, Exams of Economics

Download Economics Exam Review: CAPM, Bonds, Equity Valuation, Options, Futures and more Exams Economics in PDF only on Docsity! Economics 435 Review Questions for Final Exam Chapter 9  What are the four main conclusions of the CAPM model?  What does the model say about expected returns on individual risky securities in relation to expected returns on the market portfolio?  What is beta?  How do you calculate the beta for an individual security?  How do you define different betas?  How do you calculate expected returns in equilibrium on securities using their betas?  What is the alpha on a stock? What does it mean about the pricing of a security?  From the CAPM model, how can you tell if a stock is overpriced, underpriced, or accurately priced?  How could you take advantage of mispricings? Chapter 14: Bonds  What are the key features of bonds? (What is the par value, what is the coupon rate, what is the maturity date?)  What are some of the major types of bonds?  What features of bonds are considered less risky by investors (maturity length, the type of assets bond is tied to, etc.)  How do you calculate the price of a bond given a certain discount rate? How does this price change if the discount rate changes? Why?  What do selling above par, selling below par and selling at par mean?  Are long term or short term bonds affected more by changes in interest rates?  What is the yield to maturity? How do you calculate it? What does it mean?  What is the current yield on a bond? How do you calculate it? What does it mean?  If you buy a bond at a given price and hold it until maturity, what is your annual return?  What is the relationship between prices and yields on bonds?  If something happens to affect the probability that a bond issuer makes payments on its bonds (this is, the level of risk changes), what should happen to the price and subsequently to the yield on the bonds? 1  What are bond ratings and how might rating changes impact bond prices and yields?  If a bond is selling above par what can you infer about the YTM and current yield as compared to the bond's coupon rate? What does this difference say about changes in the risk premium on the bond, if Treasury rates are held constant?  If a bond is selling below par, or at par, what can you infer about the YTM and current yield as compared to the bond's coupon rate?  What is accrued interest and how to you calculate it?  How to you calculate the actual price paid for a bond?  What are zero coupon bonds? Chapter 18: Equity Valuation Models  What is the intrinsic value of a stock? What is this trying to capture?  How can finding intrinsic values help guide investment decisions? That is, what if current prices are different from intrinsic values?  What is the constant dividend growth model? How do you find intrinsic values using this model?  How do you find the required return on a stock? What does this tell you?  What does positive dividend growth imply about the profitability of a company?  What will drive changes in the intrinsic value of a stock? Why might a stock become more or less valuable and how are these changes reflected in the formula?  What is ROE? Why is it important?  What is a plowback ratio?  How do ROE and the plowback ratio help you find g?  How do changes in the plowback ratio change the intrinsic value of a stock?  Why might a cut in dividends due to a higher plowback ratio not always lead the stock price to rise?  What is the no-growth earnings per share and how to you calculate it?  What is PVGO and how do you calculate it?  How is PVGO related to ROE and k? What can comparisons of ROE and k tell me about PVGO?  Blue chip stocks should have what kind of PVGOs compared to stocks of start-up firms?  What is a P/E ratio? How do you calculate it?  Will stocks with high PVGOs have higher or lower P/E ratios? Why? What is the relationship (you don't need to know the formula, just the intuition)? Chapter 12: Efficient Markets Hypothesis 2