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MBA > Finance - Bonds and YTM > Flashcards

Finance - Bonds and YTM Flashcards

1
Q

Basic Balance Sheet Formula

A

Assets = Liabilities + Equity

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2
Q

What are currents assets?

A

easily liquid assets

Cash, receivables, inventories

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3
Q

what are long term assets

A

less liquid assets

property, land, patents

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4
Q

What are short term liabilities?

A

short term payments

payables, loans due in the next 6 months - year

Loans and Bonds are longer term

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5
Q

Shareholder Equity

A

Assets - Liabilities

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6
Q

What do managers choose regarding the balance sheet?

A

Assets - how to use the money “investment”

Liabilities/Equity Ratio
20%debt/80%equity or whatever

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7
Q

What is a bond?

A

a contract to repayment promises and terms

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8
Q

What are terms for bonds, generally?

A

interest only interest payments

single principal repayment at Maturity

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9
Q

how do bonds show up on a balance sheet?

A

Assets = Cash In

Liabilities = Debt owed (payments and total repayment due

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10
Q

what is par value?

A

the principal value of the debt

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11
Q

what is the coupon rate?

A

interest/year

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12
Q

what is Yield to Maturity?

A

YTM - discount rate that makes the present value of a bond’s premised cash flow equal to its price

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13
Q

YTM vs Coupon Rate

A

YTM - Market Determined

coupon rate - contractual payment

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14
Q

If the YTM = Coupon Rate What is the relationship of Price to Par

A

Price = Par

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15
Q

What is the relationship of Price to Par if YTM > Coupon Rate

A

Price < Par

sells at a discount

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16
Q

What is the relationship of Price to Par if YTM < Coupon rate

A

Price > Par

Sells at a premium

17
Q

What is a call price?

A

Price at which an issuer redeems the bond, usually greater than par

18
Q

what is a call period?

A

time range over which issuer may call in bond

19
Q

What is default risk?

A

the risk an issuer will not meet its obligations per the bond contract

20
Q

what is interest rate risk?

A

the risk that a bond’s price will change due to changes in market-wide interest rates

21
Q
A

MBA (55 decks)

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