UNISEMINAR
Finance
Maastricht
2nd Edition
Academic Year 12/13
Finance Welcome!
Welcome tto U Uniseminar!
We are glad that you chose a learning card set of Uniseminar. These learning cards cover the whole exam relevant course content of Finance. The set aims at
supporting you with the understanding of the most relevant concepts and de�initions of the course in order to optimally prepare you for the upcoming exam.
We wish you an ef�icient exam preparation and good success with your exam!
Your Uniseminar team
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Finance
Table of Contents
Finance
Table of Contents
cards Introduction I – IX Section 1: Institutional Frameworks 001 – 018 Section 2: Mergers and Takeovers 019 – 044 Section 3: Financial Decision Making & Interest Rates 045 – 093 Section 4: Investment Decisions 094 – 118 Section 5: Valuing Bonds 119 – 140 Section 6: Stocks and Portfolio Valuation 141 – 192 Section 7: Weighted Average Cost of Capital 193 – 207 Section 8: Investor Behavior and Capital Market Ef�iciency 208 – 241 Section 9: Financial Options 230 – 249 Section 10: Financial Statements 250 – 318 Notes, Feedback, Contact
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Finance
Section-‐Chapter Overview
Finance
Section-‐Chapter Overview
Ch apte r
Section
Section 1: Institutional Frameworks
1
Section 4: Investment Decisions
6, 7
Section 2: Mergers and Takeovers
Section 3: Financial Decision Making & Interest Rates Section 5: Valuing Bonds
Section 6: Stocks and Portfolio Valuation
Section 7: Weighted Average Cost of Capital
Section 8: Investor Behavior and Capital Market Ef�iciency Section 9: Financial Options
Section 10: Financial Statements
28
3, 4, 5 8
9, 10, 11 12 13 20 2
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Questions & Feedback 318 / 318
Finance
Questions & Feedback Do y you h have aany ffeedback o or q questions? In order to constantly improve, we are always glad about any feedback or questions about our products. Just send a message to info@uniseminar.nl and we will take care of your issue as soon as possible! For information about further products or about us, you are always welcome to visit our homepage: w www.uniseminar.nl! uniseminar.nl
Finance
Chapter 1: The Corporation
What is a sole proprietorship and in which sense does it differ from a partnership? -‐ Concept -‐
2 / 318
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Sole Proprietorship -‐ Partnership
P. 3
A ssole p proprietorship is a business owned and run by one person, whereas a p partnership is a sole proprietorship with more than one owner.
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Chapter 1: The Corporation
De�ine “C“-‐corporations. -‐ De�inition -‐
8 / 318
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De�inition “C“ Corporations
P. 4
”C”-‐-‐ccorporations do not have restrictions on who owns their shares or the number of shareholders and therefore cannot qualify for subchapter S treatment and are subject to direct taxation. uniseminar.nl
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Chapter 1: The Corporation
Sketch an organizational chart. -‐ Graph -‐
10 / 318
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Board of Directors
Concept Organizational Chart Chief Executive Of�icer
Chief Financial Of�icer Controller Accounting
Tax Department
P. 4
Chief Operating Of�icer Treasurer
Capital Budgeting
Risk Management
Credit Management
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Chapter 28: Mergers and Acquisitions
What are the seven steps of the takeover process? -‐ Graph (7 Points) -‐
20 / 318
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P. 8
Takeover Process
Merger motives
Tender offer
Choice of takeover targets
Tax & accounting issues
Valuation of takeover targets
Decision on �inancing
Board & shareholder approval
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Chapter 28: Mergers and Acquisitions
A poison pill is a strategy in a friendly takeover. -‐ True/False -‐
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True/False Poison Pill
P. 9
False. A p poison p pill is a defense strategy against a h hostile takeover. It is a rights offering that gives the target shareholders the right to buy shares in either the target or an acquirer at a deeply discounted price. uniseminar.nl
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Chapter 3: Arbitrage and Financial Decision Making
How do you calculate the net present value? -‐ Formula -‐
54 / 318
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Formula Net Present Value
P. 15
NPV = PV(bene�its) – PV(costs)
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Chapter 4: The Time Value of Money
What is compounding? -‐ Concept -‐
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Concept Compounding
P. 15
Compounding means computing the return on an investment over a long horizon by multiplying the return factors associated with each intervening period.
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Chapter 4: The Time Value of Money
What is a growing annuity? -‐ De�inition -‐
80 / 318
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De�inition Growing Annuity
P. 17
A ggrowing aannuity is a stream of cash �lows paid at regular intervals and growing at a constant rate, up to some �inal date.
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Chapter 7: Fundamentals of Capital Budgeting
The process of analyzing investment opportunities and deciding which ones to accept is called ________________ __________________. -‐ Fill in the Blanks (1 Term) -‐
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Fill in the Blanks Capital Budgeting
P. 26
The process of analyzing investment opportunities and deciding which ones to accept is called ccapital b budgeting.
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Chapter 8: Valuing Bonds
De�ine the following three expressions used in a bond certi�icate: maturity date, term, face value -‐ De�inition -‐
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De�inition Maturity Date, Term, Face Value
P. 32
The m maturity d date is the �inal repayment date of a bond.
The tterm is the time remaining until the �inal repayment date of a bond.
The fface v value is the notional amount of a bond used to compute its interest payments. The face value of the bond is generally due at the bond's maturity. It is also called par value or principal amount.
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Chapter 8: Valuing Bonds
Bond risk is the risk of default by the issuer of any bond that is not default free -‐ it is an indication that the bond's cash �lows are not known with certainty. -‐ True / False -‐
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True / False Credit Risk
False. Credit rrisk is the risk of default by the issuer of any bond that is not default free -‐ it is an indication that the bond's cash �lows are not known with certainty.
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Chapter 9: Valuing Stocks
What is the valuation triad, explain! -‐ Graph + Explanation -‐
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Concept Valuation Triad
Share Value Future Cash Flows Valuation Model Cost of Capital Valuation models determine the relationship among the �irm‘s future cash �lows, its cost of capital, and the value of its shares. The valuation ttriad reveals that the stock‘s expected cash �lows and cost of capital can be used to assess its market price. Conversely, the market price can be used to assess the �irm‘s future cash �lows or cost of capital, as shown above.
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Chapter 10: Capital Markets and the Pricing of Risk
What are systematic, undiversi�iable, or market risks? Are they related across stocks? -‐ Concept -‐
174 / 318
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Concept Systematic, Undiversi�iable, or Market Risk
P. 41
Systematic, u undiversi�iable, o or m market rrisks are �luctuations of a stock‘s return that are due to market-‐ wide news. They are related across stocks since they represent common risk. uniseminar.nl
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Chapter 11: Optimal Portfolio Choice / Capital Asset Pricing Model
Display the difference between a long and a short position graphically. -‐ Graph -‐
183 / 318
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Long and Short Position
P. 60
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Chapter 13: Investor Behavior and Capital Market Ef�iciency
Buying stocks that have had past high returns, and (short)selling stocks that have had past low returns is a _______________. -‐ Fill in the Blanks (1 Term) -‐
221 / 318
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Fill in the Blanks Momentum Strategy
P. 57
Buying stocks that have had past high returns, and (short)selling stocks that have had past low returns is a momentum sstrategy.
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Chapter 20: Financial Options
Call option vs. Put option -‐ 2 Points -‐
232 / 318
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Concept Put/Call
P. 61
Call: a �inancial option that gives its owner the right to buy an asset
Put: A �inancial option that gives its owner the right to sell an asset for a �ixed price up to (on a) �ixed date
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Chapter 20: Financial Options
What is the payoff structure of a strangle? -‐ Graph -‐
242 / 318
Finance Strangle
P. Â 65
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Chapter 2: Introduction to Financial Statement Analysis
What is the statement of �inancial position comprised of and what does it do? -‐ Concept -‐
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Concept Statement of Financial Position
P. 69
The sstatement o of ��inancial p position is list of the �irm‘s assets and liabilities and provides a snapshot of the �irm‘s �inancial position at a given point in time.
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Chapter 2: Introduction to Financial Statement Analysis
How is goodwill in Finance de�ined? -‐ De�inition -‐
266 / 318
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De�inition Goodwill
The difference between the price paid for a company and the book value assigned to its assets is called ggoodwill.
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Chapter 2: Introduction to Financial Statement Analysis
What is the market-‐to-‐book ratio or price-‐to-‐ book ratio? -‐ Formula -‐
280 / 318
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Formula Market-‐to-‐Book Ratio
P. 71
Market-‐-‐tto-‐-‐B Book R Ratio = Market Value of Equity / Book Value of Equity
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Chapter 2: Introduction to Financial Statement Analysis
What are share (stock) options? -‐ De�inition -‐
292 / 318
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De�inition Share Options
Share ((stock) o options are a form of compensation a �irm gives to its employees that gives them the right to buy a certain number of hares of stock by a speci�ic date at a speci�ic price. uniseminar.nl