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Fundamentals of Finance

1.     Categorize each of the following transactions as taking place in either the primary or secondary market:  o   Supercorp issues $180 million of new common stock. o   HiTech, Inc. issues $30 million of common stock in an IPO. o   Megaorg sells $10 million of HiTech preferred stock from its marketable securities portfolio. o   The XYA Fund buys $220 million of previously issued Supercorp bonds. o   A. B. Corporation sells $15 million of XYZ common stock. 2.     Identify whether the following financial instruments are capital market securities or money market securities:  o   U.S. Treasury bills. o   U.S. Treasury notes. o   U.S. Treasury bonds. o   Mortgages. o   Federal funds. o   Negotiable certificates of deposit. o   Common stock. o   State and government bonds. o   Corporate bonds. 3.     Identify the different types of financial institutions. What are the main services each of these financial institutions offers? 4.     Define the concept of term structure of interest rates. What are three theories that explain the future yield curve of interest rates? 5.     Explain whether you would you rather have a savings account that paid interest compounded on a monthly basis or compounded on an annual basis? Why? 6.     Describe what an amortization schedule is and its uses. Explain the purpose of an amortization schedule. 7.     Interest on a home mortgage is tax deductible. Explain why interest paid in the early years of a home mortgage is more helpful in reducing taxes than interest paid in later years. 8.     Explain the difference between an ordinary annuity and an annuity due.

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