FIN102: Financial Planning

2
ND
Semester, SY 2013-2014
Department of Finance and Accounting
John Gokongwei School of Management
Ateneo de Manila University
March 1, 2014

THIRD LONG TEST
NavinUttamchandani& Katrina Uybarreta


GENERAL INSTRUCTIONS:
Answer each question in no more than five sentences. (17 pts each)
Save your answers as a Microsoft Word file.
E-mail your exam by Monday, March 3, 11:59mn (navin.uttamchandani@yahoo.com /
tinauybarreta@yahoo.com). Exams not submitted by this time will receive a five point deduction
per day submitted late.


1. What is the relevance behind the DuPont equation?

Answer: The DuPont equation was made in order to dissect the Return on Equity (ROE)
equation. The DuPont analysis can show us the breakdown of the ROE equation which is the
profit margin, the total asset turnover, and the equity multiplier. Having said that, we
automatically get three different equations which can allow us to complete and compute
for other formulas. Also, with the DuPont formula, we are able to know that the three factors
which have direct effect on the ROE thus the business and these are the efficiency of the
operations, the efficiency on the use of assets and financial leverage. Knowing these three
aspects, the DuPont analysis is then put into use as it can pinpoint which part/aspect of the
business is not being used to its maximum potential.

2. Why would a bond being sold at a discount have a required rate of return higher than its
coupon rate?


3. A 10 year bond with 1 year to maturity has more risk than a 5 year bond ending next year
(assume the same coupon rate and default risk) True or false? Explain your answer.


4. Why would a stock have a beta, but a bond, which likewise reacts to market conditions, not
have one?



5. List and explain the advantages of using bonds over stocks as a source of external financing
for firms.



6. Why is the risk of the portfolio not the average of its individual investments?



http://www.investopedia.com/terms/d/discount.asp
http://www.investopedia.com/terms/d/discountbond.asp
http://www.investopedia.com/university/advancedbond/advancedbond2.asp
https://www.google.com.ph/#q=coupon%20rate%20vs%20required%20return%20bond
http://www.investinginbonds.com/learnmore.asp?catid=3&id=383