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# Study Guide

FIN/571 Version 7

## Week 4 Study Guide: Business Valuation

Readings and Key Terms

## Ch. 5 of Fundamentals of Corporate Finance

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Ch. 6
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Annuity
Perpetuity
Ordinary annuity
Present value of an annuity (PVA)
Amortization
Future value of an annuity (FVA)
Annuity due
Annual percentage rate (APR)

Ch. 7
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## Time value of money

Time zero
Future value (fv)
Principal
Simple interest
Compounding
Compound interest
Discounting
Discount rate
Present value (pv)
Rule of 72

## Total holding period return

Expected return
Variance (2)
Standard deviation ()
Normal distribution
Portfolio
Diversification
Coefficient of variation (CV)
Covariance
Diversifiable and nondiversifiable risk
Market portfolio
Market risk
Beta ()
Capital asset pricing model (CAPM)
Security market line (SML)

Ch. 8

Study Guide
FIN/571 Version 7
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Coupon payments
Face value or par value
Coupon rate
Opportunity cost
Par value bonds
Discount bonds
Yield to maturity
Effective annual rate (EAY)
Realized yield
Interest rate risk
Yield curve

Ch. 9
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Bid price
Dividend yield
Common stock
Preferred stock

Content Overview

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Single sums

Annuities

## Calculate present value.

Calculate periods.
Calculate interest and discount rate.
Calculate future value.
Interpret and make decisions from the calculations.
Understand the relationship between time, rate, and value.

## Identify various forms of annuities.

Calculate present value.
Calculate periods.
Calculate interest and discount rate.
Calculate payments.
Calculate future value.
Interpret and make decisions from the calculations.
Identify and understand perpetuities.

Costs of loans

## Calculate effective annual rate.

Compare interest rates on different loans.

Study Guide
FIN/571 Version 7

Measuring risk

## Calculate expected return using capital asset pricing model.

Identify and interpret the security market line.
Choose between two investments using CAPM.

Bond valuation
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Wealth maximization

## Calculate variance and standard deviation.

Interpret variance and standard deviation.
Understand risk diversification.

## Calculate the return of an investment.

Determine expected rate of return.

## Identify types of bonds.

Calculate value of a bond.
Identify difference between par, discount, and premium bonds.
Calculate yield to maturity (YTM).
Compare bonds uisng effective annual rate.
Understand correlation between interest rate risk and bonds.

Stock valuation
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Markets

## Differentiate between primary and secondary markets.

Differentiate between common and preferred stock.

Valuation

## Calculate value of common stock.

Calculate value of preferred stock.
Calculate yield of common and preferred stock.
Understand growth rates and how they affect dividend payments and stock valuation.