CH17: Financial Markets and Instruments Flashcards
Return on equity - Dividend Yield % Formula
Dividend paid per share / Market price of the share x100
What is equity finance?
The process of raising capital through sale of shares in an enterprise.
Bond returns formula 1: Bill Rate and its limitation?
i.e. how much a bond will pay out in a year
Bond value (nominal value) x Coupon rate (bill rate) Does not take into account the market price of bonds
Bond returns formula 2: Running Yield and its limitation?
Interest (coupon rate)% / Market value
Fails it take into account the gain in market value
Bond returns - what is the advantage of using the Gross redemption yield?
It takes into account both the MARKET PRICE and any GAINS in value before the bond is sold
What is the base rate?
The rate at which all interest rates are set
What is the Nominal return rate?
Rates often set/advertised by ordinary banks which DO NOT factor in Inflation
Yield on a corporate bond formula
Yield on a government bond % + Credit spread %
2 examples of interest rate fixing instrument
FRA and Interest Rate Futures
What is the real interest rate?
Rate of interest factoring in inflation
Net dividend Yield formula
Annual Dividend / Market value x 100%
What to credit rating agencies base their ratings of a company on?
Its Debt:Assets
Size and strength of a company’s Cashflows
The stability of a company’s asset value
How long the debt is scheduled to be outstanding
Formula for Interest yield
Coupon rate / amount paid for the financial instrument x 100%
