Everything Flashcards
Capital Budgeting
the planning process used to determine whether an organization’s long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm’s capitalization structure
Interest Only Loan
the borrower will pay the interest every period, but none of the principal will be repaid until the end of the loan
Coupon (Bonds)
The stated interest payment
made on a bond.
face value or par value
The principal amount of a
bond that is repaid at the
end of the term. Also called
par value .
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
The interest rate required in the
market on a bond.
Interest Rate Risk: All other things being equal, the longer the time to maturity
the greater the interest
rate risk
All other things being equal, the lower the coupon rate
the greater the interest rate risk
indenture
The written agreement between the corporation and the lender detailing the terms of the debt issue. Secure bonds becuz there is collateral (car/house) given by browerer if he defaults
debenture
An unsecured debt, usually
with a maturity of 10 years
or more.
sinking fund
An account managed by
the bond trustee for early
bond redemption.
call provision
An agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity.
call premium
Generally, the call price is above the bond’s stated value (that is, the par value). The difference
between the call price and the stated value is the call premium
Real interest rate
Interest rates or rates of
return that have been
adjusted for infl ation.
nominal rates
Interest rates or rates of
return that have not been
adjusted for infl ation.
Call options
https://www.youtube.com/watch?v=EfmTWu2yn5Q
Common Stock
right to vote for board of directors and get dividends; first people to buy shares if more are issued
Preferred stock
stocks that given owners the preference in how they get paid through dividends.
i. These stocks could be callable, meaning stockholder is required to sell their shares back to corporation
ii. Can be converted to common stock but not other way around
iii. Cumulative meaning if dividend is not paid it gets added up.
Bond
a corporate certificate indicating that an investor has lent money to a firm or govt
US govt bond
safe investment and so have low interest rate
Bull market
overall stock prices are going to rise
Bear market
when stock prices drop
Capital gains
the positive difference between the price at which you brought a stock and what you sell it for
Blue- chip stocks
Stocks issued by higher quality companies like Coca-cola, JJ, and IBM
Growth stocks
stocks of corp in emerging fields such as technology are expected to grow at a faster rate than other stocks
Income stocks
stocks of public utilities that offer high dividend yield
Penny Stocks
Ownership in companies that compete in high risk industries like oil companies
Beta
degree of stock’s risk
When central bank unexpectedly increases interest rates, the currency
strengthens
When central bank unexpectedly increases interest rates bond yields
rise
When yields are high, lenders are ______, borrower are _____
happy; borrowers are sad
finance lingo: long
buying
finance lingo: short
selling
Market interest rates and bond prices move is
Opposite directions
Exchange traded fund
A basket of assets that is traded like a common stock. You indirectly own the asset. Ex fidelity creates their own ETF where they include stock of J.P. Morgan, BofA, Goldman Sachs. And the price is the avg stock price.
How to you buy stock?
You have to go to broker ex fidelity they give You access to open stock market. You can place market price or limit price
Mutual fund
Managed portfolio of stock or bonds. No voting rights.
Money market funds
Risk free rate of short term debt mostly gov treasury bills. The safest but not much returns
S&P 500
Index of 500 large cap companies. It is a good gauge of the market becuz it takes into consideration of large portion of market
Stock market index
A measurement of value of a stock market. Computed from price of selected stocks. It is used to describe the market. It cannot be invested in directly.
Dow jones indu avg (DJIA)
Stocks of 30 of the largest and most influential companies using a price weighted index AKA avg of per share price of the 30 comps. But need to consider stock splits etc
NASDAQ
Stock exchange that is all computer based. Mostly tech comps that are too small to be listed in NYSE.
HAS better returns but more risk bc companies are small
NYSE
Stock exchange where there is human interaction and mantainance.
Only large companies that meet certain requirements can join
