Ch 5-7 Flashcards
FV=
PV * (1+r)^n
4 solve 5
FV, PV, n, i/y, MPT
3 Solve 4
FV, PV, n, i/y
Perpetuity
PV= PMT/i
Discount Rate =
Risk-Free Rate + Risk Premium
Compounding
Moving a sum of money further into the future
Present Value —Compounding—–>
Discounting
Moving a sum from the future back toward the present
<——Discounting——- Future Value
Future Value=
Present Value * (1 + i)^n
i
discount rate
n
Number of compounding periods
Define annuity
equally spaced sequence of equal cash flows
Ordinary annuity
One-period delay between start of annuity period and time of the first payment. i.e. Period starts at time 0 but doesn’t pay until time 1)
Current Yield=
Annual Coupon Payment/price
Nonparticipating (in the context of preferred stock)
It means the dividend rate is fixed, if the stock is participating, they may get a slightly higher dividend than normal on a good year for the company
Who gets paid first? Those who own common stock or preferred stock?
Preferred stock, if they are not paid that year, common stock cannot be paid either. And the next time preferred is paid out, they likely have to be paid for every year that has been skipped
Which stock option has voting rights?
Common stock
fixed annual dividend=
Par value * quoted %
Ordinary annuity definition
annuity payment at the end of each period for a set period of time
Annuity due definition
annuity payment due at the beginning of the period for a set period of time
perpetuity definition
annuity with indefinite time period
PV of annuity due=
(1 + interest rate)* PV of ordinary annuity
