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FINC 629 Proficiency Assessment Preparation
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The proficiency assessment will count towards 10% of the FINC629 course grade.
For this assessment (and for the FINC629 course), you will need a financial calculator which has the
following TVM functions: (PV, FV, PMT, I%, N); and you need know how to use your calculator to
calculate NPV, IRR, square root, and yx.
The attached formula sheet will be included in the proficiency exam. You will need a scantron sheet,
pencils, and a calculator during the test. You will not be allowed to bring papers or any exam related
materials from outside.
You are responsible for all FINC 341 or FINC 341-Honors materials, including concepts and formulae not
on the attached formula sheet.
The Key Topic list below covers important areas but is not exhaustive.
No sample exam questions will be provided. This is to encourage a thorough review of the materials in the
FINC341 course or a similar course taken as part of the prerequisite requirements for FINC 629.
A preview of the chapters in your FINC 629 textbook will also assist in preparation if other materials are
not available.
Key Topics:
Basic Accounting
Basic terms and structures of balance sheet, income statement, and cash flow statement
Time Value of Money
Present value + future value of cash flows
Valuation of an annuity (no growth) or a perpetuity (no growth)
Valuation of a perpetuity (constant growth)
Calculation of the number of periods, cash flow, or rate of return of a loan or investment.
Interest rate conversions (EAR, APR, periodic rate)
Determination of Payment
Security Valuation
Characteristics and basic terminologies of bonds, preferred stock, and common stock
Valuation of zero-coupon, annual coupon, and semiannual coupon bonds: yield to maturity, bond price,
coupon amount or coupon rate.
Preferred stock valuation: cost of preferred stock capital and preferred stock price
Dividend yield, capital gain yield, and total return (i.e., total yield) of common stocks
Common stock valuation based on expected dividends (constant and non-constant growth)
Capital Budgeting
Payback period
Net Present Value (NPV)
Internal Rate of Return (IRR)
NPV profile and crossover point
Equivalent Annual Annuity (EAA)
Strengths and weaknesses of the capital budgeting evaluation techniques
(also known as “investment decision rules”)
Risk and Returns
Tradeoff between risk and return for large portfolios versus individual stocks
Single Asset standard deviation
Portfolio expected return and beta
CAPM, Security Market Line (SML), systematic risk, beta
Weighted average cost of capital (WACC) of a firm that has debt, preferred stock, and common stock)
Efficient Markets Hypothesis
FINC 629 Proficiency Exam Preparation
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Business Ethics and Agency Relationships
Ratio analysis and pro forma financial statements
Concept and calculation of Economic Value Added (EVA) and Market Value Added (MVA)
Continuous compounding or continuous discounting
Concept and calculation of the term structure of interest rates
Concept and calculation of Yield to Call (YTC)
Conceptual issues in bankruptcy and reorganization
Calculation of multiple IRRs; Concept and calculation of Modified IRR (MIRR)
Calculations involving complex capital budgeting problems (e.g., expansion or replacement), sensitivity
analysis, breakeven analysis, or scenario analysis;
Calculation of MACRS depreciation, loss carry-back, loss carry-forward
Discounted payback period
Replacement chain approach
Calculation of free cash flow
Using a decision tree to evaluate investment timing options
Choosing projects under capital rationing (also known as “profitability index”)
Cost of retained earnings, retained earnings break point
Stock valuation based on comparable firms; stock valuation based on total payout model, stock valuation
based on the discounted free cash flow model
Calculation of single asset or portfolio variance, impact of changes on SML
Cash budget
Financial forecasting
Options pricing
International Finance
Dividend policy or dividend issuance process/decisions
Capital structure theory, including effect of leverage on capital structure
FINC629 Proficiency Exam Formula Sheet
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PV (annuity) = C ´ çç1 r è (1 + r ) N
PV =
C
r-g
1 + EAR = (1 +
P0 =
APR m
)
m
Div1
rE - g
FINC 629 Proficiency Exam Preparation
ö
÷÷
ø
FV (annuity) = C ´
(
)
1
(1 + r ) N - 1
r