Test 2 Corp Finance
Business Administration 1 with Lala at University of Minnesota - Duluth
About this deck
By: Ashley Peterson
Created: 2010-10-27
Size: 45 flashcards
Views: 20
Created: 2010-10-27
Size: 45 flashcards
Views: 20
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future value
the amount an investment is worth after one or more periods
compounding
the process of accumulating interest on an investment over time to earn more interest
compounded interest
interest earned on both the initial principal and the interest reinvested from prior periods
simple interest
interest earned only on the original principal amount invested
present value
the current value of future cash flows discounted at the appropriate discount rate
discount
calculate the present value of some future amount
discount rate
the rate used to calculate the present value of future cash flows
annuity
a level stream of cash flows for a fixed period of time
annuity due
an annuity for which the cash flows occur at the beginning of the period
perpetuity
an annuity in which the cash flows continue forever
stated interest rate
the interest rate expressed interest of the interest payment made each period.
effective annual rate (EAR)
the interest rate expressed as if it were compounded once per year
annual percentage rate (APR)
the interest rate charged per period multiplied by the number of periods per year
coupon
the stated interest payment made on a bond
face value
the principal amount of a bond that is repaid at the end of the term
coupon rate
the annual coupon divided by the face value of a bond
maturity
the specified date on which the principal amount of a bond is paid
yield to maturity (YTM)
the rate required in the market on a bond
current yield
a bond's annual coupon divided by its price
indenture
the written agreement between the corporation and the lender detailing the terms of the debt issue
bearer form
the form of bond issue in which the bond is issued without record of the owner's name, payment is made to whomever holds the bond
note
an unsecured debt, usually with a maturity under 10 years
sinking fund
an account managed by the bond trustee for early bond redemption
bid price
the price a dealer is willing to pay for a security
asked price
the price a dealer is willing to take for a security
real rates
interest rates or rates of return that have been adjusted for inflation
nominal rates
interest rates or rates of return that have not been adjusted for inflation
Fisher Effect
the relationship between nominal returns, real returns, and inflation
dividend yield
a stocks expected cash dividend/ current price
capital gains yield
dividend growth rate, or the rate at which the value of an investment grows
common stock
equity without priority for dividends or in bankruptcy
proxy
grant or authority by a shareholder allowing another individual to vote his or her shares
preferred stock
stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights
Future Value =
PV(1+r)^t
r= period interest rate
t= number of periods
for any given interest rate, the longer the time period, the ___ the PV
lower
for any given time period, the higher the interst rate, the ____ the PV
smaller
annuity
finite series of equal payments that occur at regular intervals
oridnary annuity
when the first payment occurs at the END of the period
annuity due
when the first payment occurs at the BEGINNING of the period
Perpetuity equation:
PV=C/r
growing perpetuity equation
PV= C/r-g
r= required reture
g= growth rate
Differences between debt and equity
not an ownership interest vs. ownership interest
not having voting rights vs. having voting rights
interest is a cost and tax deductable vs. dividends not a cost and not tax ded.
is a liability vs. not a liability
can go bankrupt vs. can't go bankrupt
bond indenture
contract between the company and the bondholders
Fisher Effect
(1+R)= (1+r)(1+h)
R= nominal rate
r= real rate
h= expected inflation rate
Dividend Growth Model
P0 = D1/R-g
About this deck
By: Ashley Peterson
Created: 2010-10-27
Size: 45 flashcards
Views: 20
Created: 2010-10-27
Size: 45 flashcards
Views: 20
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj