Chapter 2: Cashflow models Flashcards
Investor
The party that takes an action to pursue profit
Cashflow model
A mathematical projection of the payments arising from a financial transactions
Zero coupon bond
A contract to provide a lumpsum at sum specified future date.
Fixed interest security
Holder of the security would receive a lumpsum of a specified amount at some specified future date, plus a series of regular fixed payments until the repayment of the lumpsum
Index linked security
Initial negative security cashflow, follwed by a series of unknown positive cashflows, all on specified dates. All the cashflows relate to an inflation index and are known in real terms.
Cash on deposit
Investor can choose when to disinvest, receives interest additions during the period of investment
Equity
Securities held by owners of an organisation, they are entitled to the profits
Cashflow mode needs an assumption about the growth of dividends
Assumed to be held to perpetuity
What other ways can a company use to distribute earnings
- expansions
- smoothings
- Share buybacks
Annuity certain
Series of regular payments in return for a singular premium paid at the outset, number of payments (frequency and years) and payment amount (real or nominal) should be specified
Interest only loan
A loan repayable by a series of interest amounts followed by the return of the intial loan
* The interest may be fixed or variable
* May be able to repay the loan early
Repayment loan (mortgage)
Repayable by a series of payments sthat include partial repayment of the capital in addition to interest payments
Joint life annuity
Paid on the survival of at least one life
Reversionary annuity
Start at the death of the 1st life and stops at the death of the second life
