1
00:00:00,000 --> 00:00:08,000
Alan Cring Productions in association with the Emergent Light Studio presents

2
00:00:08,000 --> 00:00:17,000
the Illinois State Collegiate Compendium, Academic Lectures in Business and Economics.

3
00:00:17,000 --> 00:00:24,000
This is Business Finance, FIL 240 for spring semester 2024.

4
00:00:24,000 --> 00:00:32,000
Today, review for the midterm exam.

5
00:00:32,000 --> 00:00:39,000
Now I'll start out the class with just the usual look at the numbers.

6
00:00:39,000 --> 00:00:48,000
And this is to the purpose of preparing you for the exam because I will do a screenshot of a stock on the exam

7
00:00:48,000 --> 00:00:56,000
and I will ask you questions from that screenshot so here's an opportunity to see that in action

8
00:00:56,000 --> 00:01:02,000
and I'll get the low down on what exactly I'm going to be asking you about it.

9
00:01:02,000 --> 00:01:08,000
But to start it off, of course, we should have a look at the overall markets.

10
00:01:08,000 --> 00:01:14,000
And they were in a grumpy mood all day until just about 15 minutes ago,

11
00:01:14,000 --> 00:01:21,000
suddenly they had a surge up into positive territory, at least the S&P 500 and the NASDAQ.

12
00:01:21,000 --> 00:01:29,000
Now the Dow is still a little tiny bit down, but it's trying to find its way back up into green territory.

13
00:01:29,000 --> 00:01:40,000
So a bear day, a weak bear day, is turning into a weak bull day, but that's about all you can say.

14
00:01:40,000 --> 00:01:49,000
And of course we can look across here, S&P 500, Dow 30, those would be indexes, not exchanges,

15
00:01:49,000 --> 00:01:55,000
but the NASDAQ doesn't have numbers so that would be an actual exchange.

16
00:01:55,000 --> 00:02:03,000
I'll ask about that on the exam and it's easy to tell an index from an exchange, an index will have a number after it.

17
00:02:03,000 --> 00:02:13,000
S&P 500, Dow 30, Russell 2000, so those are indexes. NASDAQ, NYSE, those are exchanges.

18
00:02:13,000 --> 00:02:21,000
Coming over here and having a look at crude. Crude had been above that 79 resistance,

19
00:02:21,000 --> 00:02:24,000
but it chickened out and now it's coming back down below it.

20
00:02:24,000 --> 00:02:34,000
So that's good news is we aren't having some kind of a surge in oil prices because of some crisis situation.

21
00:02:34,000 --> 00:02:44,000
Most of this movement right now is just supply and demand forces moving it around,

22
00:02:44,000 --> 00:02:50,000
but mostly probably demand for gasoline and diesel and all that good stuff.

23
00:02:50,000 --> 00:02:54,000
So nothing much there. Gold is a little more of an issue.

24
00:02:54,000 --> 00:03:05,000
Gold has had a surge upward and that's kind of a sign that the gold bugs are getting worried about a financial apocalypse or something.

25
00:03:05,000 --> 00:03:12,000
So we'll let them worry about that. It looks like everything else is pretty calm right now, no fear or worry.

26
00:03:12,000 --> 00:03:23,000
Now over here the 10-year bond, we see that the yield is up and it's up about almost four basis points.

27
00:03:23,000 --> 00:03:32,000
Nothing spectacular, but the important part for the exam says, okay, yield is up, that means the price is down.

28
00:03:32,000 --> 00:03:39,000
Price would be down because the supply of bonds in the open market is increasing.

29
00:03:39,000 --> 00:03:44,000
In other words, they're selling of bonds, investors getting out of bonds.

30
00:03:44,000 --> 00:03:53,000
Getting out of bonds means that the price will fall and that will cause the yield to rise.

31
00:03:53,000 --> 00:04:04,000
And if you can follow that chain of logic, there's a question that walks you through three drop-down menus

32
00:04:04,000 --> 00:04:09,000
in one sentence about a bond yield doing something.

33
00:04:09,000 --> 00:04:13,000
Bonds have dropped three basis points.

34
00:04:13,000 --> 00:04:24,000
This means that supply or demand, you choose the one, has increased, decreased, causing the price to increase or decrease.

35
00:04:24,000 --> 00:04:29,000
So you follow through on the three pieces of that and you'll get to the end.

36
00:04:29,000 --> 00:04:34,000
Now over here, just a quick look at what happened overseas.

37
00:04:34,000 --> 00:04:40,000
Last night, Tokyo was up and then it just slowly slid away.

38
00:04:40,000 --> 00:04:49,000
There was a little surge at the end there, but whatever good news was pushing the bulls to buy in the morning,

39
00:04:49,000 --> 00:04:58,000
kind of fizzled out later in the morning and they just sort of petered out, finished up a respectable half a percent, but there's that.

40
00:04:58,000 --> 00:05:04,000
Now London came along and it was bad all through the day.

41
00:05:04,000 --> 00:05:11,000
Finally, whatever bad news kept hammering the market downward eventually stopped happening

42
00:05:11,000 --> 00:05:17,000
and the market just settled on this lower level for the rest of the trading day.

43
00:05:17,000 --> 00:05:21,000
And it finished off about a half a percent, a little more than half a percent.

44
00:05:21,000 --> 00:05:24,000
Nothing big there.

45
00:05:24,000 --> 00:05:34,000
Now let me take you on a walk through what will be like a screenshot that you would see for the exam.

46
00:05:34,000 --> 00:05:41,000
Let me do Blockade Martin, LMT.

47
00:05:41,000 --> 00:05:48,000
The first thing is I would say, okay, what exchange is this trade on?

48
00:05:48,000 --> 00:05:58,000
Well, it has LMT, that's three letters. That would mean that it is a New York Stock Exchange stock, most likely.

49
00:05:58,000 --> 00:06:06,000
If it were four letters, it would be a NASDAQ stock, but we see here LMT is three letters

50
00:06:06,000 --> 00:06:13,000
and if you look right below it, it'll even tell you this is a New York Stock Exchange stock, NYSE.

51
00:06:13,000 --> 00:06:18,000
Now don't be fooled, right next to it you see NASDAQ real-time price.

52
00:06:18,000 --> 00:06:23,000
The NASDAQ there just says that's where it's being quoted.

53
00:06:23,000 --> 00:06:28,000
NASDAQ quotes everything, almost. Pretty much everything.

54
00:06:28,000 --> 00:06:35,000
So just keep in mind that whatever stock you see, I'm going to ask you what its exchange is.

55
00:06:35,000 --> 00:06:43,000
You answer that it is, if it's one, two or three letters, NYSE, and you can look right up here and see it.

56
00:06:43,000 --> 00:06:46,000
If it's four letters, it would be a NASDAQ stock.

57
00:06:46,000 --> 00:06:53,000
Now the next thing that I would go through is looking at the screen's numbers.

58
00:06:53,000 --> 00:07:04,000
The first thing I would do is I'd say, okay, you go long 100 shares or you sell, you go long one round lot

59
00:07:04,000 --> 00:07:09,000
or you sell around lot. Now go long means buy.

60
00:07:09,000 --> 00:07:15,000
So that's going to be the first thing that I do. You go long or you sell around lot.

61
00:07:15,000 --> 00:07:23,000
And then I'll say, what happens? Do you pay or do you receive? That's the first thing.

62
00:07:23,000 --> 00:07:31,000
Well, I'm going long. If I'm going long, I would be paying. If I'm selling, then I would be receiving.

63
00:07:31,000 --> 00:07:44,000
But then I'd say this, okay, let's say that you go long. Would you pay $43,335?

64
00:07:44,000 --> 00:07:57,000
Would you pay $43,274? Or would you pay $43,307?

65
00:07:57,000 --> 00:08:03,000
It depends what number. You wouldn't use this number right here. That you would not use.

66
00:08:03,000 --> 00:08:08,000
The $43,36. It would be the bid or the ask.

67
00:08:08,000 --> 00:08:21,000
Now if I'm buying, I will pay the ask. So in this case, the answer would be in the multiple choice,

68
00:08:21,000 --> 00:08:30,000
getting that twitchy crap out of the way. I would pay $43,307.

69
00:08:30,000 --> 00:08:38,000
That's how the question would be worded. I'd pay or I'd receive and then I would give you different amounts of money.

70
00:08:38,000 --> 00:08:47,000
Just look for the one, if you're buying, it would be the ask times $100. If you're selling, it would be the bid times $100.

71
00:08:47,000 --> 00:08:55,000
If you're buying, you would pay. If you're selling, you would receive. So that would be one.

72
00:08:55,000 --> 00:09:03,000
Now another one that I would ask you is this. I would say, which of the following is correct about the risk of the stock?

73
00:09:03,000 --> 00:09:12,000
It is riskier than the market. It is about the same as the market risk. Or it is less than the market risk.

74
00:09:12,000 --> 00:09:22,000
In this case with LMT, it's below one, noticeably below one. So it is less risky than the market.

75
00:09:22,000 --> 00:09:31,000
So I would ask you that. The next thing I would say is relative to the market, the intrinsic value.

76
00:09:31,000 --> 00:09:41,000
Is this stock overvalued, approximately appropriately valued, close to the intrinsic value, or is it undervalued?

77
00:09:41,000 --> 00:09:48,000
Now in this one, it's a little bit undervalued. The one that you'll get will be pretty obvious.

78
00:09:48,000 --> 00:10:00,000
It'll be way above 30, really close to 30, or way below 30. So in this case, it's a little below, so I might say it's a little undervalued.

79
00:10:00,000 --> 00:10:10,000
So that would be the third question that I would ask you on a stock screen for this exam.

80
00:10:10,000 --> 00:10:15,000
You all with me here? No you don't.

81
00:10:15,000 --> 00:10:23,000
Well, is this company profitable? Well, I look right down here at the EPS and it's not just positive, it is very positive.

82
00:10:23,000 --> 00:10:28,000
This is a very attractive stock.

83
00:10:28,000 --> 00:10:40,000
Now remember, the PE ratio, if it's not there, that means that this company is losing money. That's all it means, is that the company is losing money.

84
00:10:40,000 --> 00:10:52,000
It's a negative EPS. So if you don't see an EPS, that would mean that this company has a negative, if you don't see a price earnings ratio, I should say,

85
00:10:52,000 --> 00:10:59,000
that means that the company is losing money. I said that wrong the first time.

86
00:10:59,000 --> 00:11:11,000
Okay, that is the stock screen. Now let me close this off so I can use my exam as the guide.

87
00:11:11,000 --> 00:11:16,000
Well, I suppose I could just leave the exam, let you see the exam.

88
00:11:16,000 --> 00:11:25,000
Okay, down to the meat of the review. And this is your study guide.

89
00:11:25,000 --> 00:11:37,000
The teaching assistant has some paper ones, or you can have an email if you want, of a written version of this, a little somewhat of this.

90
00:11:37,000 --> 00:11:55,000
But here's how it goes. You're allowed a 4x6 note card, front and back, your financial analysis formulas sheet that's in files in your Canvas folders,

91
00:11:55,000 --> 00:12:11,000
and you can use a financial calculator if you want, TI-83 Plus, physical or virtual, and your computer. Excel is what I would expect you to use on this exam.

92
00:12:11,000 --> 00:12:22,000
And you have a template that should get you through anything that would be a mathematical, numerical type of problem on the exam.

93
00:12:22,000 --> 00:12:33,000
Now I caution you not to try to sneak a GPT, a chat GPT, to help you with other things in here, because chat GPTs are really unreliable.

94
00:12:33,000 --> 00:12:48,000
Almost all of them run right to Wikipedia, and then you get bad information, because Wikipedia is just riveted by false, misleading, and unreliable information.

95
00:12:48,000 --> 00:12:55,000
So if you ask one of my questions, my multiple choice questions of a chat, you're very likely to get the wrong answer.

96
00:12:55,000 --> 00:13:04,000
That's how unreliable they are, because they're all using the freebie Wikipedia. But anyway, those are the things.

97
00:13:04,000 --> 00:13:17,000
Now as far as questions go, there are, by count of question numbers, there are 36. However, there are parts of questions, now you have two matching sections.

98
00:13:17,000 --> 00:13:30,000
I'll talk about those in just a minute. So one of them has five matches, and the other has four matches, so that takes you up nine more from 36 to 45.

99
00:13:30,000 --> 00:13:39,000
And then some of the questions have multiple drop-down mentions. None of them will be where you actually have to type in a word.

100
00:13:39,000 --> 00:13:48,000
I've found that I get so many different misspellings that I'm having to chase down all the different misspellings.

101
00:13:48,000 --> 00:13:56,000
So they're drop-downs. So there are maybe three, I think, that have a couple of drop-down menus in them.

102
00:13:56,000 --> 00:14:05,000
So that's kind of like up to maybe about total 50 questions. Now the questions range in point value.

103
00:14:05,000 --> 00:14:20,000
From 2 to 2.5, those are more of the easy or moderate. And then you have the 1 to 2. Those can be a little bit on the more robust side,

104
00:14:20,000 --> 00:14:32,000
what I call my level three more difficult questions. So overall, you should attack, now all the numerical questions where you would need to use calculator or Excel,

105
00:14:32,000 --> 00:14:45,000
they're at the bottom. So that keeps you from wrangling with those and burning up time when you could be doing questions with good point values higher up earlier in the exam.

106
00:14:45,000 --> 00:14:54,000
Now as far as the matching goes, there are two different matching. And each of them has what are called distractors.

107
00:14:54,000 --> 00:15:09,000
In other words, five problems, but you might have eight or nine choices. And so that means that there are more possible answers than actual answers.

108
00:15:09,000 --> 00:15:16,000
As I said, those are distractors. Just be aware that you'll see that in the two matching sections.

109
00:15:16,000 --> 00:15:31,000
Now the first matching section is more words and match them to a definition. The second matching is words or terms and match them to a president from that lecture I gave you.

110
00:15:31,000 --> 00:15:41,000
That spanned, in other words, you could have, you'll have a word like whip inflation now. Well, which president would that be associated with?

111
00:15:41,000 --> 00:15:51,000
You would have Eisenhower, Johnson, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, and Reagan. And you'd have to say which one that was.

112
00:15:51,000 --> 00:16:02,000
So that would, and it would go down through there with all of those different possible, different terms that were closely associated with a specific president.

113
00:16:02,000 --> 00:16:14,000
So make sure you know those. Generally speaking, the matching is high, people get all of them or almost all of them. So they help with your overall score for the exam.

114
00:16:14,000 --> 00:16:32,000
Now, getting down to meet. As far as the questions go, the math questions. You will have a present value of an annuity.

115
00:16:32,000 --> 00:16:54,000
You will have a future value of an annuity. You will find a loan payment. You'll have to find a loan payment.

116
00:16:54,000 --> 00:17:04,000
You will also need, have to find an annualized return on an investment.

117
00:17:04,000 --> 00:17:11,000
That is the second worksheet in that spreadsheet, present values and future values.

118
00:17:11,000 --> 00:17:21,000
So if you don't have the latest one, be sure you've downloaded the latest version of that Excel spreadsheet from your, in your Canvas files.

119
00:17:21,000 --> 00:17:32,000
And then you'll also calculate a change in net operating working capital.

120
00:17:32,000 --> 00:17:39,000
Now, I won't have you calculate a full-blown free cash flow on the midterm.

121
00:17:39,000 --> 00:17:50,000
It'll just be the one where you take the net operating working capital for the current year minus the net operating capital for the previous year.

122
00:17:50,000 --> 00:18:03,000
Current assets minus current liabilities. But if you can get it into the spreadsheet, you should be able to, if you can get it into a nice spreadsheet very quickly,

123
00:18:03,000 --> 00:18:10,000
just open up an extra worksheet, put in your current assets for the two years, current liabilities for the two years,

124
00:18:10,000 --> 00:18:23,000
take the difference of those for each year and then subtract the two net operating working capitals. So you can do that one on a spreadsheet pretty quickly.

125
00:18:23,000 --> 00:18:28,000
Just get the numbers in there and do the little arithmetic.

126
00:18:28,000 --> 00:18:37,000
And you might even want to put that little formula in a little, in a corner in your note card. But that's your choice.

127
00:18:37,000 --> 00:18:42,000
So those are the direct math questions on the exam.

128
00:18:42,000 --> 00:18:53,000
Now, there are other questions that have numbers in them, but you are doing more of an analysis or saying what this means.

129
00:18:53,000 --> 00:18:59,000
Specifically, I will maybe say which ratio is larger.

130
00:18:59,000 --> 00:19:07,000
And you would look at the formulas and say, okay, well, the only thing that's different are the denominators.

131
00:19:07,000 --> 00:19:12,000
So the denominator of this one is bigger than the denominator of this one.

132
00:19:12,000 --> 00:19:19,000
So that means that the first one is smaller than the second one. Something along those lines.

133
00:19:19,000 --> 00:19:28,000
Or I could just say, okay, which is bigger, the acid test or the burn ratio, the cash ratio?

134
00:19:28,000 --> 00:19:39,000
I could do that one. Or something like, I don't know, which one is bigger, inventory turnover ratio or total asset turnover ratio?

135
00:19:39,000 --> 00:19:49,000
Looking at the numbers, looking at which one mathematically would be just by its nature larger or smaller.

136
00:19:49,000 --> 00:19:55,000
And a few questions I might say, okay, is this a possibility, this ratio?

137
00:19:55,000 --> 00:19:58,000
Could you have, let's say, a net margin less than zero?

138
00:19:58,000 --> 00:20:03,000
Well, yeah, if earnings are less than zero, you certainly could.

139
00:20:03,000 --> 00:20:07,000
Could I have a plow back ratio that's less than zero?

140
00:20:07,000 --> 00:20:14,000
Well, no. The least amount that you can put back in from your retained earnings is zero.

141
00:20:14,000 --> 00:20:16,000
So it couldn't be negative.

142
00:20:16,000 --> 00:20:21,000
So there will be somewhere you'll have to think your way through it a little bit.

143
00:20:21,000 --> 00:20:30,000
Could the number be smaller or larger than what I'm saying its possible limit is?

144
00:20:30,000 --> 00:20:40,000
But those, just think your way through them and look at the formula sheet to determine, can this happen?

145
00:20:40,000 --> 00:20:44,000
Now, in some cases, it could happen, but it would be a very bad thing.

146
00:20:44,000 --> 00:20:52,000
And times interest earned below one means that your earnings before interest in taxes isn't enough to pay your earnings.

147
00:20:52,000 --> 00:20:56,000
So in some of them, it's just not advisable.

148
00:20:56,000 --> 00:21:05,000
So there will be that kind of, just a little bit of going beyond the math and asking, is this possible?

149
00:21:05,000 --> 00:21:11,000
Is it a good idea? Is it something that we should do, we should have?

150
00:21:11,000 --> 00:21:15,000
Okay, that is ratios.

151
00:21:15,000 --> 00:21:18,000
Now, getting down to some meat.

152
00:21:18,000 --> 00:21:27,000
Definitions are meat and potatoes of an introduction to finance course.

153
00:21:27,000 --> 00:21:33,000
So obviously I'm going to ask you questions about what does this mean?

154
00:21:33,000 --> 00:21:54,000
Like liquidity, capital, money, primary market, secondary market, spot, forward,

155
00:21:54,000 --> 00:22:09,000
investment bank, commercial bank, financial services bank, forms, like form 10Q, 10K, 8K.

156
00:22:09,000 --> 00:22:23,000
Where are they? What can you get from them? What information?

157
00:22:23,000 --> 00:22:32,000
Other terms. I've gone through, in the first half of the course, I go through approximately 55 new terms

158
00:22:32,000 --> 00:22:42,000
or sharp, clear, specific definitions of less form, that are used less formally by people who are not business people.

159
00:22:42,000 --> 00:22:51,000
So in this case, there are terms that would be used by a common person, which would not be what we mean in our world.

160
00:22:51,000 --> 00:22:59,000
So make sure that you can go through this. By the time the semester is over, we'll have, if I'm doing the count right,

161
00:22:59,000 --> 00:23:05,000
116 terms. Right now it's at about 55.

162
00:23:05,000 --> 00:23:12,000
And just dig through and you'll see how many are in your notes.

163
00:23:12,000 --> 00:23:18,000
And another thing about your notes. First and foremost, your notes are the best place for you to study.

164
00:23:18,000 --> 00:23:24,000
However, they are probably not going to be very good in the first couple of weeks.

165
00:23:24,000 --> 00:23:30,000
There's a development period. That's why those podcasts are so useful to you.

166
00:23:30,000 --> 00:23:38,000
If you have the time, go back and listen, especially to those early lectures, where the whole foundation was being laid out.

167
00:23:38,000 --> 00:23:42,000
Didn't sound like it, but that's how it is.

168
00:23:42,000 --> 00:23:50,000
And if you want the transcript, I set out an announcement with some of the places where you can listen to my podcasts.

169
00:23:50,000 --> 00:23:56,000
The one at RSS has the transcript as well. And it's pretty darn accurate.

170
00:23:56,000 --> 00:24:00,000
It's very accurate, in fact. It's a good transcript.

171
00:24:00,000 --> 00:24:08,000
So you can actually, if you want to go through and actually see the notes of the lecture literally, orally, has a happen.

172
00:24:08,000 --> 00:24:28,000
RSS is the one you would probably want to use. Let me do something real quick here, if I can.

173
00:24:28,000 --> 00:24:37,000
Now here was one lecture podcast. You can go in there, and the links to some of my different podcasting sites are right there for you to use.

174
00:24:37,000 --> 00:24:45,000
Now I do see that maybe 30 of my 400 or so students have actually been here so far.

175
00:24:45,000 --> 00:24:53,000
Now this is the core one, the one that was the original from 2007 or something like that.

176
00:24:53,000 --> 00:24:59,000
And of course, that's the one where you can just listen, click and listen.

177
00:24:59,000 --> 00:25:17,000
You can also go over to Apple iTunes, which has been picking up my feed for almost as long as I've had it since the first decade of the 21st century.

178
00:25:17,000 --> 00:25:21,000
So you can listen to them there. That's a nice place.

179
00:25:21,000 --> 00:25:29,000
Now the last one here, RSS, this is the one where the transcripts are.

180
00:25:29,000 --> 00:25:45,000
Now these are the audio. If you click here, instead of on the play, if you click on a lecture and then click on transcript, there's the transcript right there.

181
00:25:45,000 --> 00:25:54,000
So you can play it, and you can see, oh god damn, oh audio.

182
00:25:54,000 --> 00:26:04,000
But it will walk you line by line through the transcript. As it's playing, it will just highlight the line that I'm on as I'm speaking.

183
00:26:04,000 --> 00:26:11,000
So if you want the authoritative notes to the course, there they are.

184
00:26:11,000 --> 00:26:18,000
That doesn't mean you stop coming to class, for heaven's sakes, because obviously you wouldn't see what I write on the board and the graphics and all that.

185
00:26:18,000 --> 00:26:24,000
But it's still an excellent resource if you want to grab some quick information.

186
00:26:24,000 --> 00:26:35,000
And obviously you can go back here, let me come back to the upside, and you can get to any lecture that you want along the way.

187
00:26:35,000 --> 00:26:43,000
Now these take a lot of time to create these podcasts on all these different sites.

188
00:26:43,000 --> 00:26:49,000
I'm not doing it for my health, I'm doing it for you, because I care about you.

189
00:26:49,000 --> 00:26:54,000
More, I want to say go to the podcast, you'll hear it there. But anyway, enough of that.

190
00:26:54,000 --> 00:26:58,000
So that's a resource for you as well.

191
00:26:58,000 --> 00:27:09,000
Now one last one, of course, are the quizzes. Those quizzes have a lot of information in them that I might use on an exam.

192
00:27:09,000 --> 00:27:16,000
As a matter of fact, sometimes I'm lazy. I copy a question from a quiz and I paste it into an exam.

193
00:27:16,000 --> 00:27:22,000
Sometimes word for word, sometimes I might change a word or scramble the answers.

194
00:27:22,000 --> 00:27:30,000
But that's another great place to get a study for the midterm exam.

195
00:27:30,000 --> 00:27:34,000
So that's there for you as well.

196
00:27:34,000 --> 00:27:45,000
Okay, now I'm going to tell you some, you should know this.

197
00:27:45,000 --> 00:27:59,000
You should know the difference between costs in accounting, what costs accountants use, and what costs financial professionals use.

198
00:27:59,000 --> 00:28:10,000
Make sure you know that.

199
00:28:10,000 --> 00:28:23,000
Make sure you know the difference between a bill, a note, and a bond.

200
00:28:23,000 --> 00:28:30,000
And know the difference between the seller and the investor or the buyer.

201
00:28:30,000 --> 00:28:44,000
Who is in a loan agreement, who is selling the debt instrument, who is buying the debt instrument.

202
00:28:44,000 --> 00:28:49,000
Now that takes us to financial intermediation.

203
00:28:49,000 --> 00:28:52,000
Make sure you know what that means.

204
00:28:52,000 --> 00:29:10,000
What is it? What are the requirements in financial intermediation?

205
00:29:10,000 --> 00:29:21,000
You need definitely to know the difference between stock and bonds.

206
00:29:21,000 --> 00:29:31,000
And in that same regard, which one has the prior claim to cash flows?

207
00:29:31,000 --> 00:29:37,000
And which one has the residue or the residual claim?

208
00:29:37,000 --> 00:29:42,000
What investors must be paid first?

209
00:29:42,000 --> 00:30:06,000
And then when they're taken care of for this current time period, which investors get what remains, the residual?

210
00:30:06,000 --> 00:30:21,000
You should know the difference between market price and intrinsic price, or market value versus intrinsic value.

211
00:30:21,000 --> 00:30:38,000
Which one matters in the long run versus the short run?

212
00:30:38,000 --> 00:30:49,000
Make sure you know the difference between spot and forward.

213
00:30:49,000 --> 00:30:58,000
I went through this just a minute ago, I think, but make sure you know what I mean by common stock.

214
00:30:58,000 --> 00:31:05,000
What I mean by a bond as a security.

215
00:31:05,000 --> 00:31:12,000
What's an ETF? A mutual fund.

216
00:31:12,000 --> 00:31:19,000
You know, this isn't something where you need to know a long legal definition.

217
00:31:19,000 --> 00:31:27,000
You just need to know what are these animals.

218
00:31:27,000 --> 00:31:31,000
Interest rates.

219
00:31:31,000 --> 00:31:35,000
What are the parts of an interest rate?

220
00:31:35,000 --> 00:31:40,000
For example, what's in the risk-free rate?

221
00:31:40,000 --> 00:31:47,000
What's in the risk premium?

222
00:31:47,000 --> 00:32:05,000
How do the parts of that risk premium change depending upon what kind of a loan you're talking about?

223
00:32:05,000 --> 00:32:19,000
The forms that I've shown you, the 10Q, the 10K, the 8K, what do you find in each of those that might be important?

224
00:32:19,000 --> 00:32:28,000
Something that I've brought up that you will find in only one of them.

225
00:32:28,000 --> 00:32:33,000
I could say, well, where would you find this piece of information?

226
00:32:33,000 --> 00:32:41,000
I'd give you a choice of forms, and you have to figure out which one it is that you would find that in.

227
00:32:41,000 --> 00:33:00,000
I might even throw in a few distractors.

228
00:33:00,000 --> 00:33:05,000
Know the difference between compounding and discounting.

229
00:33:05,000 --> 00:33:23,000
I did this on a quiz. I'll do it again on the exam.

230
00:33:23,000 --> 00:33:24,000
Yeah?

231
00:33:24,000 --> 00:33:25,000
You said compounding versus what?

232
00:33:25,000 --> 00:33:33,000
Discounting. Compounding versus discounting.

233
00:33:33,000 --> 00:33:46,000
One is to find present values. The other is to find future values.

234
00:33:46,000 --> 00:34:00,000
There will be one, and I did this on a quiz, where I will ask you for the effect on free cash flow of some change in a current asset or current liability.

235
00:34:00,000 --> 00:34:09,000
So I could say, okay, accounts receivable went up. What does that do to free cash flow?

236
00:34:09,000 --> 00:34:19,000
Well, it makes it go down. Or wages payable increased. What does that do to free cash flow?

237
00:34:19,000 --> 00:34:26,000
Well, wages payable, that's a current liability, goes up. That means free cash flow goes up.

238
00:34:26,000 --> 00:34:32,000
I did a little diagram there on the board. Current assets go up, free cash flow goes down.

239
00:34:32,000 --> 00:34:41,000
Current assets go down, free cash flow goes up. And opposite for current liabilities.

240
00:34:41,000 --> 00:34:51,000
Might want to put that somewhere in a little corner of your notes, too.

241
00:34:51,000 --> 00:35:01,000
Make sure you know the relationship between liquidity and expected return.

242
00:35:01,000 --> 00:35:23,000
In other words, as liquidity of an asset goes up, what does that mean about what you expect the return to be?

243
00:35:23,000 --> 00:35:33,000
Now, there was a one through one, and this is also well laid out in the book, about different kinds of financial intermediaries.

244
00:35:33,000 --> 00:35:45,000
Investment banks, commercial banks, financial services companies, those kinds of animals.

245
00:35:45,000 --> 00:35:53,000
What would one do that the other would not do? Know the distinctions.

246
00:35:53,000 --> 00:35:58,000
I certainly don't need you to say everything that each one of them does,

247
00:35:58,000 --> 00:36:16,000
but there are some clear lines that distinguish one type from another type.

248
00:36:16,000 --> 00:36:23,000
Now, there's one, and I always throw a bone about it. I don't go into too much detail,

249
00:36:23,000 --> 00:36:40,000
but there's one where I say you've got two identical annuities, except that one is ordinary and the other is due.

250
00:36:40,000 --> 00:36:57,000
In this question, I'll say, okay, what would be the relative sizes of the present values or the future values?

251
00:36:57,000 --> 00:37:01,000
In other words, these are two identical, except one has payments at the end of periods,

252
00:37:01,000 --> 00:37:07,000
the other has payments at the beginnings of periods.

253
00:37:07,000 --> 00:37:12,000
What does that mean about their present values relative to each other?

254
00:37:12,000 --> 00:37:17,000
Or I could ask about their future values relative to each other.

255
00:37:17,000 --> 00:37:24,000
It sounds complicated, but if you draw a timeline, just a couple of years, just make it a couple of years,

256
00:37:24,000 --> 00:37:30,000
and just look at what happens as you discount the two and then as you compound the two.

257
00:37:30,000 --> 00:37:38,000
What happens to their relative values when you find their present values or when you find their future values?

258
00:37:38,000 --> 00:37:45,000
I won't tell you any more about it, but I always throw up this bone to give you a way to kind of think about it

259
00:37:45,000 --> 00:37:54,000
and practice it before the exam.

260
00:37:54,000 --> 00:38:12,000
Now I'm obviously going to ask you about the relationship between bond price and bond yield.

261
00:38:12,000 --> 00:38:21,000
And of course, I'll probably ask you about beta, what it's telling us.

262
00:38:21,000 --> 00:38:26,000
It's just one of those things that's important to start talking about early in the course

263
00:38:26,000 --> 00:38:36,000
before I even formally introduce it with a formula and all that.

264
00:38:36,000 --> 00:38:38,000
Okay, I think it's your turn.

265
00:38:38,000 --> 00:38:42,000
Ask me questions.

266
00:38:42,000 --> 00:38:43,000
Yeah?

267
00:38:43,000 --> 00:38:45,000
Intrinsic value?

268
00:38:45,000 --> 00:38:51,000
That's the long-term value of a stock.

269
00:38:51,000 --> 00:38:57,000
The market price varies around it, above it, below it,

270
00:38:57,000 --> 00:39:08,000
but the intrinsic value represents the true present value of all of the future expected cash flows of the corporation.

271
00:39:08,000 --> 00:39:16,000
The market price can go up or down based upon bulls and bears fighting it out day after day,

272
00:39:16,000 --> 00:39:21,000
but the intrinsic value is what is the underlying price.

273
00:39:21,000 --> 00:39:23,000
Value, yes?

274
00:39:23,000 --> 00:39:25,000
What are the present values?

275
00:39:25,000 --> 00:39:28,000
Again, present values and future values.

276
00:39:28,000 --> 00:39:29,000
Give me a second here.

277
00:39:29,000 --> 00:39:34,000
I'll even show it to you again.

278
00:39:34,000 --> 00:39:38,000
Bear with me while I get that up.

279
00:39:38,000 --> 00:39:46,000
And 240 and student view.

280
00:39:46,000 --> 00:40:05,000
And you should see in files, you go down to your spreadsheets,

281
00:40:05,000 --> 00:40:11,000
right here, present and future values.

282
00:40:11,000 --> 00:40:27,000
Now make sure that you have the latest version of this because it's the one that has the worksheet in it for finding annualized holding period returns.

283
00:40:27,000 --> 00:40:29,000
I mean, you can do those by the formula.

284
00:40:29,000 --> 00:40:30,000
It's not that hard.

285
00:40:30,000 --> 00:40:38,000
I will give you one that's in years, okay?

286
00:40:38,000 --> 00:40:41,000
Watch this not be the latest one.

287
00:40:41,000 --> 00:40:50,000
I'll go through and make sure I have it.

288
00:40:50,000 --> 00:40:51,000
Yep, I got it.

289
00:40:51,000 --> 00:40:52,000
It's there.

290
00:40:52,000 --> 00:40:55,000
So this is the one for annualizing.

291
00:40:55,000 --> 00:41:03,000
The one that was originally there when I was doing present and future values of annuities and loans, that's the first sheet.

292
00:41:03,000 --> 00:41:08,000
The second sheet has four years between, days between.

293
00:41:08,000 --> 00:41:11,000
It'll be a years between question.

294
00:41:11,000 --> 00:41:15,000
Just make sure you put in the numbers right.

295
00:41:15,000 --> 00:41:32,000
Something that I saw happen on the quiz, there were a surprising number of people who got an answer wrong because they forgot to put in the problems APR.

296
00:41:32,000 --> 00:41:46,000
What they had, I couldn't figure out why you were not too far off, but you were off, and it was because you had used the APR that was already in the template instead of the one that was in the problem.

297
00:41:46,000 --> 00:41:57,000
So make sure, that's one thing I give you a caution, make sure you put in all of the numbers that are for that, for the problem.

298
00:41:57,000 --> 00:42:00,000
That's where you can get burned on it.

299
00:42:00,000 --> 00:42:10,000
Other than that, it should give you your answers as fast as a financial calculator would, probably faster.

300
00:42:10,000 --> 00:42:16,000
And certainly a lot faster than if you tried to use those tables that you used in accounting.

301
00:42:16,000 --> 00:42:20,000
So take full advantage of that.

302
00:42:20,000 --> 00:42:24,000
It's not there, you don't need to look around and see if anyone's watching.

303
00:42:24,000 --> 00:42:35,000
I expect you to get comfortable with getting your answers using Excel, because the business world just uses it all the time now for everything.

304
00:42:35,000 --> 00:42:43,000
It seems like they even use it for things that they really shouldn't use it for.

305
00:42:43,000 --> 00:42:51,000
Okay, other questions that you might have?

306
00:42:51,000 --> 00:42:54,000
Anything else you got? Yeah?

307
00:42:54,000 --> 00:42:58,000
Can you show us how to download the Graphic Map for your computer?

308
00:42:58,000 --> 00:43:02,000
Sure can. Do you have a Mac or a PC?

309
00:43:02,000 --> 00:43:03,000
PC.

310
00:43:03,000 --> 00:43:10,000
I'll show you then. Okay, watch this. It's actually, bear with me, let me go back in here.

311
00:43:10,000 --> 00:43:13,000
And Access denied my ass.

312
00:43:13,000 --> 00:43:15,000
Show the screen.

313
00:43:15,000 --> 00:43:16,000
Huh?

314
00:43:16,000 --> 00:43:18,000
Show the screen.

315
00:43:18,000 --> 00:43:29,000
I have to show the screen.

316
00:43:29,000 --> 00:43:31,000
Do you see that?

317
00:43:31,000 --> 00:43:37,000
Don't tell me my access is denied. Oh, leave student view. Oh, I was in student view.

318
00:43:37,000 --> 00:43:41,000
Sorry about that. Let me get back here.

319
00:43:41,000 --> 00:43:47,000
Had me worried, I thought they'd fired me.

320
00:43:47,000 --> 00:43:56,000
Student view. Okay, watch. Go to your files and you go clear down here to the bottom.

321
00:43:56,000 --> 00:44:01,000
Now you'll see Virtual TI-83 Calculator.

322
00:44:01,000 --> 00:44:03,000
Now you click on that.

323
00:44:03,000 --> 00:44:10,000
No, no, no. I do that. Does anyone else do that where you don't download it, you accidentally just click on it?

324
00:44:10,000 --> 00:44:15,000
Watch. You go download.

325
00:44:15,000 --> 00:44:20,000
And then the Virtual TI, it's a self-executing zip file.

326
00:44:20,000 --> 00:44:24,000
And it's going to say, okay, here it is right here.

327
00:44:24,000 --> 00:44:28,000
So what we're going to do is we're going to unzip it.

328
00:44:28,000 --> 00:44:33,000
Now on these computers they make it very difficult for you to unzip something.

329
00:44:33,000 --> 00:44:36,000
Seven-zip. Should do it.

330
00:44:36,000 --> 00:44:39,000
Okay, extract the files.

331
00:44:39,000 --> 00:44:45,000
And what you'll see is it will tell you where do you want to put this.

332
00:44:45,000 --> 00:44:50,000
You really, I mean, you can put it about anywhere.

333
00:44:50,000 --> 00:44:59,000
It would go to downloads automatically, but you might want to put it in documents, in your core documents.

334
00:44:59,000 --> 00:45:06,000
Okay? Okie dokie and say okay.

335
00:45:06,000 --> 00:45:12,000
Now if I go over here to the documents, I'll see it right here.

336
00:45:12,000 --> 00:45:26,000
Now you double click on it, and you'll have to double click again until you get to a folder called VTI-83.

337
00:45:26,000 --> 00:45:31,000
Now when you double click on that, you're going to go down a couple layers.

338
00:45:31,000 --> 00:45:36,000
There's an actual icon file. That means it's an executable.

339
00:45:36,000 --> 00:45:38,000
That's the calculator.

340
00:45:38,000 --> 00:45:50,000
Now you can leave it there and just go there every time you want to use it, but it's a lot nicer if you right click on it and send it to the desktop.

341
00:45:50,000 --> 00:45:54,000
Send to the desktop as a shortcut.

342
00:45:54,000 --> 00:46:06,000
So in other words, you're just going to extract the files and then go down until you find that blue icon and send it to the desktop.

343
00:46:06,000 --> 00:46:17,000
And once you send it there, your TI-83 is available all the time.

344
00:46:17,000 --> 00:46:20,000
See it?

345
00:46:20,000 --> 00:46:28,000
And then you can double click on it, and there it is.

346
00:46:28,000 --> 00:46:45,000
So first you download it, then you extract the files from the archive, and then you go down all the layers of folders until you find that blue little icon and send it to your desktop.

347
00:46:45,000 --> 00:46:48,000
And then it will be there every time you click on it.

348
00:46:48,000 --> 00:46:54,000
Now to get out of it, right click, exit without saving state, and it will go away.

349
00:46:54,000 --> 00:46:56,000
Anything else?

350
00:46:56,000 --> 00:46:58,000
Eat your Wheaties.

351
00:46:58,000 --> 00:47:04,000
Any lecture is usually up by 7 p.m.

352
00:47:04,000 --> 00:47:10,000
I get back to my flat at about 5.30, and it takes me about an hour, hour and a half.

353
00:47:10,000 --> 00:47:16,000
And so it comes up, just be a little patient, because it will come up though tonight.

354
00:47:16,000 --> 00:47:19,000
That's all I have for you today. I thank you.