Principles of Investing FIN 330 Phase 1 Exam Study Guide Chapters 12-15: 40 Questions Multiple Choice, True/False, [3] Problems
Chapter 12: Fundamental Analysis – Part 1 How do economic conditions affect company performance? Macro-Economy Business cycles What methods are used to measure the firm’s financial performance? Ratio Analysis Trend Analysis Comparative analysis (v-v industry) What are the critical valuation factors? What information is contained in the 10-K report? 10-Q?
Chapter 12: Fundamental Analysis – Part 1 E. How does the industry life cycle resemble the product life cycle? F. How does competition affect an industry? 1. Does the domestic industry have much foreign competition? 2. Impact of number of domestic competitors G. Why and How do we classify industries?
Chapter 12: Fundamental Analysis – Part 1 H. How does top-down analysis work? Bottom-up? I. What are some key Macro Indicators? J. What is meant by; Cyclical sectors? Defensive sectors? K. What information is contained on the balance sheet? Income Statement? Statement of Cash Flows? L. What is meant by free cash flow?
Chapter 13: Fundamental Analysis – Part 2 Financial Statement Analysis (FSA) What are some measures we can use to gauge or measure managerial efficiency in the following areas? Liquidity management? (Current & Quick Ratios) Asset management? (Days Sales Outstanding, Inventory Turnover) Debt management and strategy? (Leverage and ROE) Profitability? (Cost controls; variable, fixed) What is the primary objective of the DuPont system of financial analysis?
Chapter 13: Fundamental Analysis – Part 2 How does debt impact DuPont analysis? Asset investment? Net profit margins? What types of information are contained in the balance sheet? (LHS versus RHS) What information is contained in the income statement? What information is contained in the statement of cash flows?
Chapter 14 Bond Valuation Five Pricing Theorems Bond prices move inversely to changes in interest rates The longer the maturity of a bond, the more price sensitive the bond to changes in rates (%) The price sensitivity of bonds to changes in interest rates increases as maturity increases, but at a decreasing rate Bonds with lower coupon rates are more price sensitive. Zero coupon bonds are the most sensitive. Yield decreases have a greater impact on bond prices than similar yield increases
Chapter 14 Bond Valuation B. What are the 4 measures of Bond Yields? Coupon Yield (rate) The interest rate the bond promises to pay Current Yield (rate) The [annual] coupon divided by the current price Yield to Maturity The total rate of return if held to maturity Yield To First Call The adjusted YTM if bond is called early.
Chapter 14 Bond Valuation C. What is Duration? What are the two sources of risk? Who uses Duration? How is duration affected by coupon rates? D. Computing Bond values (Financial Calculator Required.) Bond Price Yield to First Call E. What does it mean when bonds; Sell at Par?, at a Premium?, at a Discount?
Chapter 15 Portfolio Evaluation How does Active portfolio management differ from Passive? How should asset allocation change as the investor gets older in terms of risk? Why do portfolios require rebalancing from time to time? Why are geometric returns preferred to arithmetic mean returns? How do the following methods measure investment performance? Sharpe Treynor Jensen How does Morningstar rank fund performance?