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Corporate Managerial Finance > Exam 2 > Flashcards

Exam 2 Flashcards

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1
Q

What is a Bond

A

Debt contract - interest only loan - that you will pay later on in the future

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2
Q

What is par value?

A

It is the face amount of the bond paid at maturity

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3
Q

What is the coupon rate?

A

It is the stated interest - usually YTM at issue

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4
Q

How do you calculate coupon payment?

A

Coupon rate x par value

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5
Q

How do you calculate coupon yield?

A

Current yield x par value

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6
Q

What is the maturity date of a bond

A

It is the years until the bond must be repaid

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7
Q

What is yield to maturity

A

Market required rate for bonds of similar risk and maturity - basically the coupon rate at issue - noted as APR

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8
Q

How do you price bonds on the calculator

A

2nd > 9 > bond
SDT = actual settlement date (day you receive bond when buy)
CPN = ANNUAL RATE IN PERCENTAGE (1=100%) - COUPON RATE
RDT = BOND MATURITY DATE
RV = REDEMPTION VALUE A % OF PAR - HOW MUCH YOU GET AT maturity
ACT = ACTUAL NUMBER OF DAYS (360)
2/Y = 2/Y OR 1/Y - HOW MANY COUPON PER YEAR (PERIODS)
YLD = YIELD TO REDEMTION -
CPT = COMPUTE
PRI = DOLLAR PRICE PER 100 PAR VALUE
AI = ACCRUED INTEREST (ADD TO PRI FOR DIRTY PRICE)

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9
Q

Discount bond

A

Bond price below par value

Coupon rate below YTM

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10
Q

Premium bond

A

Price of bond above par value

Coupon higher than yield to maturity

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11
Q

How to find Pv of bond

A

1000 > fv
1000 x .1 > pmt
Maturity 5 years > n = 5
Ytm = 11% > i/y = 11
Cpt > pv (compute pv)
-963.04

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12
Q

What is price risk

A

Change in price due to changes in interest rates

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13
Q

Long term bonds have more price risk than what

A

Short term bonds

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14
Q

Low coupon rate bonds have more proce risk than what

A

High coupon rate bonds

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15
Q

What is reinvestment rate risk

A

Uncertainty concerning rate at which cash flows can be reinvested

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16
Q

Short term bonds have more reinvestment risk than

A

Long term

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17
Q

High coupon rate have more reinvestment risk than

A

Low rate bonds

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18
Q

How do you compute yield to maturity

A

You enter pmt and fv (they must be same sign)

Pv opposite sign

Cpt i/y for yield (YTM)

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19
Q

Debt v equity: debt

A

Not ownership interest
No vote
Interest tax deductible
Creditors can get you
Can lead to financial distress

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20
Q

Debt v equity: equity

A

Ownership interest
Common stock holders vote to elect bod
Dividends not tax deductible
Dividend liability of firm
All equity firm cannot go bankrupt

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21
Q

Bond indenture

A

Deed of trust - contract bw issuing company and bondholders include
Special calls

22
Q

Collateral bonds

A

Secured by financial security

23
Q

Mortgage

A

Secured by real property land

24
Q

Debentures

A

Unsecured bond

25
Q

Notes

A

Unsecured debt with original maturity less than 10

26
Q

Which bonds have high coupon rates with everything else equal?

A

A bond with a longer maturity will usually have higher rate than short term

27
Q

Bond rating

A

High-grade
Medium
Low
Very low

28
Q

High grade bonds

A

Pay is extremely strong to strong

29
Q

Medium grade bonds

A

Strong but more susceptible to change - addiquat

30
Q

Government bonds include

A

Municipal securities
Treasury securities

31
Q

What are municipal securities

A

Debt of the state and local government

32
Q

Treasury securities are what

A

Federal government debt

33
Q

Types of treasury securities

A

Treasury bills
Treasury notes
Treasury bonds

34
Q

Treasury bill

A

Pure discount bond
Original maturity one year or less

35
Q

Treasury note

A

Coupon debt
Maturity one to ten year

36
Q

Treasury bond

A

Coupon debt
Maturity greater than ten year

37
Q

Zero coupon bond

A

Coupon rate zero no periodic
Difference between purchase price and par value (cap gains)
interest payment
Zero/deep discount
Treasury bill ans us saving bond

38
Q

Floating rate bond

A

Coupon rate floats depending in some index value

Less price risk

39
Q

Bond markets are

A

Primary over the counter transaction with dealers

40
Q

Quote bind price equals what

A

Clean price

Net accused interest

41
Q

Invoice price equals what

A

Dirty price or full price
Price actually paid
With accrude interest

42
Q

Accrued interest is what

A

Interest earned since last coupon payment is owerd to bond seller at time of sale

43
Q

Fisher effect is what

A

Relationship bw time to maturity and yield all else equal

1+R = (1+r)(1+h)

R= quotes rate
r=real rate
h=inflation rate
Approximation R=r+h

44
Q

If you own a stock you are a what

A

Owner of the corp

45
Q

You can receive cash from stocks by

A

Dividens and selling shares

46
Q

Price of stock is the present value of

A

Dividends cash income

Selling = capital gains

47
Q

Find npv of stock

A

Do CF on calculator

48
Q

Perpetuity means what

A

Equal number of cash flow given a rate of return

49
Q

Constant dividend growth/zero growth

A

Firm pays constant dividend
Preferred stock
Price computed using the perpetuity formula

50
Q

Perpetuity formula

A

P0=dividend/rate

51
Q

Constant dividend growth

A

Firm will increase dividend by cosntant percent every period

Corporate Managerial Finance (1 decks)

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