- StudyBlue
- Australia
- Macquarie University
- Finance
- Finance 101
- Wescott
- Example Test 1

Mia N.

If a loan is being repaid by n installments of R per time period

the principal contained in successive installments increases. The interest contained in successive installments decreases. The total of the interest content and the principal content for any installment is constant. The total of the entries in the interest column is nR-L

A loan is being repaid by equal monthly instalments of n/r years at r% p.a. flat

The monthly installment will be greater than that for a loan with interest at j12= r%. The effective annual rate of interest is approximately 2r%. The total of the interest payments in the first year of the loan repayment.

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NPV

A negative NPV indicates that a project should not proceed. When calculating NPV's to compare two alternative projects.

IRR

the internal rate of return that produces a zero NPV. Multiple solutions are sometimes possible.

Capitalized cost equals the sum of

original cost: the present value of a perpetuity to replace: the present value of a perpetuity to maintain.

Relationships between bonds and yields

If redemption is at par then bond interest rate equals required yield and the price of the bond immediately after an interest payment will always equal the bond's face value. if no allowance is made for taxation, growth interest payments are valued. Must use simple interest rather than compound interest for a fraction of the interest period that has elapsed since the last interest payment. Will result in a slightly higher price.

REMEMBER

in formula 11 the focal date is one time unit before the first payment. in formula 10 the focal date is at the time of the last payment.

The priority of payment from long-term corporate financial instruments from highest to lowest

Corporate bonds, preference shares, and ordinary shares.

Liability management

managing sources of funds to meet loan demand

Capital Adequacy Requirements require banks to hold a minimum level of

equity capital

For superannuation investment options, the level of investment risk ranked from lowest to highest is

capital stable fund, balanced growth fund, managed growth fund.

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In Australia, most unit trusts are . . and most property trusts are . . .

unit trusts are unlisted and property trusts are listed.

Placement

An offer of additional shares to selected institutional investors.

The acceptor of a bill of exchange does what

undertakes to repay the holder of the bill at maturity.

Basis risk

A pricing deferential for a financial instrument between the physical market and the futures market.

The break-even on a call option

the exercise price plus the cost of the initial premium

Initial margin

When a company enters into a futures contract, the company is required to pay the clearing house.

As the quote increases . .

The yield decreases and the price increases.

Sydney Futures Exchange is an example of

derivatives market

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