ECON 371 Study Guide - Final Guide: 5,6,7,8, Capital Cost Allowance, Net Present Value
Document Summary
Only non-programmable calculators are allowed during the nal exam. The nal exam covers chapters 4, 5, 6, 7, 8, 10 and 11. Chapter 4 (the time value of money, tvm) is the most important chapter. Chapters 5 and 6 are just applications of the tvm to price bonds and stocks, respectively. The fair price of any asset/security is the present value of all the cash. Ows of the asset/security when discounted at an interest rate appropriate for the risk of the cash ows. Typically known: forecasts of future cash ow, cost of capital (i. e. discount rate) depends on the risk of the project. Diversi cation eliminates unique risk, so only the market risk counts in the end. The expected rate of return on an asset/security given its market risk ( ): capm and sml. For materials before the mid-term, see review for mid-term. Each of the above alternative criteria has its own pitfalls.
