Lessons: Chapter 10 - Business and Financial Concepts You Should Know


Important Links

Net Present Value made simple: NPV Simplified

A Refresher on Net Present Value: Article from Harvard Business Review

Explanation of Net Present Value (PDF with an exercise): Exercise

Net present value (NPV) calculator from Investopedia: NPV Calculator

What the Bond Market Says About Stocks — and Vice Versa: Stock/Bond Relationship

How Bonds Affect the Stock Market : Stock/Bond Relationship

Bond Basics: Learning About Bonds

Importance of Interest Rates: The Importance Of Interest Rates To Investors, Retirees, And The Economy


Assignments

 

10.1: The principle of supply and demand is most closely related to the following:

  1. The more people want to buy a particular product, the higher the price of that product

  2. The more people want to buy a particular product, the lower the price of that product

  3. The less people want to buy a particular product, the higher the price of that product

 

10.2: Two of the ways you can make money with stocks include:

  1. Dividends

  2. Capital Appreciation

  3. Retained Earnings 

  4. Item#1 and Item#2

  5. Item#1 and Item#3

 

10.3: Is the following statement True or False?

It's important to group companies into industries because sometimes useful to compare how stocks within a specific industry are performing especially since different industries have their own peculiar characteristics

 

10.4: Is the following statement True or False?

If you bought a 10-year bond with a 3% fixed interest rate last year and you want to sell it this year when the interest rate on similar bonds have increased to 5%, you will generally get less money than the amount you payed for it last year.

 

10.5: The word diversification with regards to stocks generally implies that you should:

  1. Put all your investments in different stocks within the same industry 

  2. Put your investments in different stocks in different industries

  3. Put your investments in blue-chip stocks

 

10.6: Which of the stocks in the Dow Jones listed below would be considered the riskiest stock when risk is measured only by Beta?

  1. Goldman Sachs Group (GS)

  2. Home Depot (HD)

  3. The Coca-Cola Company (KO)

 

10.7: The business cycle can best be described as:

  1. The cycle of inflation and deflation

  2. The various stages in the economic life of a company

  3. The increase in Gross Domestic Product

 

10.8: Which of the following can best describe growth stocks:

  1. Stocks of large companies that have paid steady dividends over many years

  2. Stocks of companies that are growing dramatically

  3. Stocks of utility companies that have paid steady dividends over many years

 

10.9: Which one of the following stocks would most likely be considered an interest-rate sensitive stock:

  1. LinkedIn stock

  2. Apple stock

  3. Bank of America stock

 

10.10: Which one of the following stocks would most likely not be considered a cyclical stock:

  1. Dow Chemical stock 

  2. United Airline stock

  3. Wal-Mart stock

  4. Ford stock

 

10.11: True or False. Income stocks  usually are stocks of companies that pay no dividends while growth stocks are stocks of companies that grow quickly and pay heavy dividends.

 

10.12: True or False. Value investors sometimes look for stocks that have fallen on hard times, and therefore are therefore  relatively cheap compared with their prices.

 

10.13: If you bought a stock that pays no dividend for $110 exactly one year ago today, and then sell it today for $120, your return on investment would be which of the following?

  1. 10.0%

  2. 9.1%

  3. 8.3%

 

10.14: Assume you $1000 in a bank account that pays 10% simple interest annually. At the end of 3 full years, how much interest would you have earned?

 

10.15: Assume you $1000 in a bank account that pays 10% compound interest annually. At the end of 3 full years, how much interest would you have earned?

 

10.16a: Choose One. How much do you have to invest today so that in 1 year, you receive $1000 if the interest rate you will be paid for the investment is 12%?

  1. $888

  2. $900

  3. $893

 

10.16b: Which one of the choices below is correct.

  1. The answer to 10.16a represents future value

  2. The answer to 10.16a represents present value

 

> Answers to Chapter 10 Assignments