finance lec 1

Question 1

any descison company makes is

Answer 1

financial

Question 2

what are the 2 main tyopes of ddesicsions

Answer 2

investments to make

how to finance investments

when to invest

Question 3

economic assumption is we like to have more of

Answer 3

something we like

Question 4

£1 today is wort morethan

Answer 4

a poun tomrrow / in future

Question 5

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

Answer 5

spend it on something now or invest in something else

Question 6

opportunity cost

Answer 6

value of next best alt foregone

Question 7

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

Answer 7

interest , yield , return

Question 8

how is interest measured -

Answer 8

rate

Question 9

what are the two elements of an interest rate

Answer 9

compensation for inflation

real rate above inflation

Question 10

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

Answer 10

yes

Question 11

cashflows at differnet times are not the

Answer 11

same

Question 12

you cannot add cashflows that are at

Answer 12

differnent times

Question 13

when we bring money from future to the present

Answer 13

discounting

Question 14

if we bring money from present to future

Answer 14

compounding

Question 15

who is present value referred to

Answer 15

t0

Question 16

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

Answer 16

t1

Question 17

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

Answer 17

original investment of 100

10 interest payment

Question 18

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

Answer 18

yes same value expressed at diff points in time

Question 19

compounding effect means you’re earning interst on your

Answer 19

interest

Question 20

what is the equation for calculating a future valu

Answer 20

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

t = time desired

Question 21

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

Answer 21

FV *1/(1+r)^t

or

FV/(1+r)^t

Question 22

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

Answer 22

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

Question 23

discount rate

Answer 23

reward you get for your investmet

Question 24

discount factor

Answer 24

1/(1+r)^t

Question 25

how many dp do we express discount factor to

Answer 25

4 dp

Question 26

disocunt rate aka

Answer 26

opportunity cost of capital

Question 27

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

Answer 27

the bigger the reward we’re asking for

Question 28

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

Answer 28

risk averse

Question 29

how do we work out net present valur

Answer 29

sum of all future cashflows - required investment

Question 30

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

Answer 30

incur a cost

Question 31

in net present value you may not incur a cost

but

Answer 31

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