FIn300 discussions

Wk 1 - Conference Questions

Ratio analysis is a very powerful tool for analyzing financial performance that has many valuable applications and some inherent potential weaknesses. Answer the following two questions in one paragraph each: (1) identify the major application of Ratio Analysis and (2) identify some of the potential weaknesses that are inherent in ratio analysis overall.

Wk 2- Conference Questions

The core formula underlying the time value of money theory, FV= PV x (1+r)ⁿand its reciprocal

PV = FV/(1+r)ⁿ, is based on the assumption that a dollar today is worth more than a dollar tomorrow because it is assumed you can invest the dollar today and earn additional value.

While this is generally true:

1. Can you identify some conditions where the assumption might not hold?
2. When the conditions do not hold, what is the wise course of action for today’s dollar holder?
3. When the invested dollar does not earn additional value, are the basic time value formulas still valid? Explain your answer.

Wk 3- Conference Questions

The “Nominal” rate of interest is composed of several components each of which has an impact on the actual interest charged or received: (1) Identify these interest rate components, (2) define what they represent, (3) what determines their magnitude, and (4) specify how they impact on the nominal rate. Use illustrative examples or formulas if and as necessary.

Wk 4- Conference Questions

Traditional financial theory states that there is an inverse relationship between a bond’s price and the current interest rates, i.e. when interest rates go up, bond prices fall and when interest rates go down, bond prices rise.

(1) For the following two scenarios is that statement true? - provide your supporting rationale.

Scenario 1: You purchase a $1,000 par value bond 5 year maturity bond with a coupon rate of 5% and a Yield to maturity of 6%, You plan to sell this bond in 3 years.

Scenario2: You purchase a $1,000 par value bond 5 year maturity bond with a coupon rate of 5% and a yield to maturity of 6%. You plan to keep the bond to maturity (5 years).

(2) Also identify some factors other than the interest rate that can affect the price of a bond?

(3) Who bears the risk, gain or loss, of a change in bond price?