finance lec 1 Flashcards

1
Q

any descison company makes is

A

financial

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1
Q
A
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2
Q

what are the 2 main tyopes of ddesicsions

A

investments to make

how to finance investments

when to invest

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3
Q

economic assumption is we like to have more of

A

something we like

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4
Q

£1 today is wort morethan

A

a poun tomrrow / in future

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5
Q

if you decide to invest money today you give up the oportunity

A

spend it on something now or invest in something else

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6
Q

opportunity cost

A

value of next best alt foregone

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7
Q

if we tie up money in savings we et a reward called

A

interest , yield , return

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8
Q

how is interest measured -

A

rate

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9
Q

what are the two elements of an interest rate

A

compensation for inflation

real rate above inflation

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10
Q

rea IR can be +ve or -ve t/f

A

yes

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11
Q

cashflows at differnet times are not the

A

same

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12
Q

you cannot add cashflows that are at

A

differnent times

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13
Q

when we bring money from future to the present

A

discounting

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14
Q

if we bring money from present to future

A

compounding

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15
Q

who is present value referred to

A

t0

16
Q

if present value is t0 what is next period/year referred to

A

t1

17
Q

if we had 100 and got an interest rate of 10% - and got 110 what is this mad eof

A

original investment of 100

10 interest payment

18
Q

catrrying on from the £100 investment of 10% is 100 = £110 a year from now = £121 two years from now

A

yes same value expressed at diff points in time

19
Q

compounding effect means you’re earning interst on your

A

interest

20
Q

what is the equation for calculating a future valu

A

CF0(cashflow today) * (1+ interest rate)^t = FVt

t = time desired

21
Q

what is the eqaution for bringinng a future value back to present

A

FV *1/(1+r)^t

or

FV/(1+r)^t

22
Q

when you discount your future cahs flow and you get your number what does this mean

A

if someone offerig you a pound x amount of time from now that is the maximum price we will be willing to pay

23
Q

discount rate

A

reward you get for your investmet

24
Q

discount factor

A

1/(1+r)^t

25
Q

how many dp do we express discount factor to

A

4 dp

26
Q

disocunt rate aka

A

opportunity cost of capital

27
Q

as rational individual teh higher the risk /longer we got to wait

A

the bigger the reward we’re asking for

28
Q

its the default in finance that what type of risk individuals are we

A

risk averse

29
Q

how do we work out net present valur

A

sum of all future cashflows - required investment

30
Q

in net present value what mut you do to be entitled to future +ve cf

A

incur a cost

31
Q

in net present value you may not incur a cost

but

A

at that exact moment maybe instead a year from now or suttin

everything needs to be discounted back to teh day you made the descisoin