Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

healthcare finance > Finance Test 4 > Flashcards

Finance Test 4 Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 65 flashcards Series 63 flashcards Series 66 flashcards Series 7 Top-off Exam flashcards SIE Exam flashcards CFA flashcards Series 79 Top-Off Exam flashcards
1
Q

Credit Policy

A

Generically, a business’s rules and regulations regarding granting credit and collecting from buyers that take credit; for healthcare providers, the business’s policy regarding self pay and indigent patients

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Free Trade Credti

A

the amount of credit received from a supplier that has no explicit cost attached; in other words, credit received during the discount period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Costly trade credit

A

the credit taken by a company from a vendor in excess of the free trade credit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Compensating Balance

A

a minimum checking account balance that a business must maintain to compensate that bank for other services or loans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Line of credit

A

a loan arrangement in which a bank agrees to lend some maximum amount to a business over some designated period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are accruals? What is their role in short term Financing?

A

accruals increase automatically as a firm’s operations expand. this type of short term debt is free in the sense that no explicit interest is paid on funds raised through accruals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the “price” of debt capital?

A

The price takes the form of dividends and capital gains (or losses)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What four factors affect the cost of money?

A

investment opportunities, time preferences for consumption, risk and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Term Loan

A

long term debt financing obtained directly from a financial institution, often a commercial bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Bond

A

long term debt issues by a business or government unit and generally sold in $1,000 or $5,000 increments to a large number of individual investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Corporate Bond

A

debt issued (sold) by for profit businesses, as opposed to government or tax exempt bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

zero coupon bonds

A

a bond that pays no interest. it is bought as a discount from par value, so its return comes solely from price appreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Mortgage bond

A

a bond issued by a business that pledges real property as collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Debenture

A

an unsecured bond, meaning one that has no assets pledged as security (collateral)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Municipal Bond

A

a tax exempt bond issues by a govt entity, such as a state, city, or healthcare financing authority

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Private Placement

A

the sale of newly issues securities to a single investor or small group of investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Junior Mortgage

A

second mortgages are sometimes called junior mortgages because they are junior in priority to claims of senior mortgages, or first mortgage bonds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Key Difference between a private placement and a public issue?

A

Interest rate on private placements is generally higher that the interest rate on public issues. the administrative costs of placing an issue are less for private placements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the purpose of a bond pool?

A

raise funds by issuing municipal bonds that are then loaned to not for profit hospitals that are too small to ‘tap’ the muni market directly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Indenture

A

a legal document that spells out the rights and obligations of both bondholders and the issuing corporations; the loan agreement for a bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Promissory Note

A

a doc that specifies the terms and conditions of a loan; also called loan agreement or in the case of bonds, indenture

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Restrictive Covenant

A

a provision in a bond indenture or loan agreement that protects the interests of lenders by restricting the actions of management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Trustee

A

an individual or institution, typically a commercial bank, that represents the interests of bondholders

24
Q

call Provision

A

a provision in a bond indenture (contract) that gives the issuing company the right to redeem (call) the bond prior to maturity

25
Q

What is the diff between technical default and ‘regular’ default?

A

by allowing its current ratio to drop below 2.0 it is said to be technical default. Reg default occurs when an interest or principal payment is not made on time, which is called a missed payment

26
Q

What impact does a call provision have on an issue’s interest rate?

A

it is valuable to the issuer but potentially detrimental to bondholders, especially if the bond is issues during a period when interest rates are cyclically high.

27
Q

investment grade bond

A

a bond with a BBB or higher rating

28
Q

junk bond

A

a bond with a BB or lower rating

29
Q

What are the three major rating agencies?

A

Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s

30
Q

What are some criteria that the rating agencies use when assigning ratings?

A

quality or management and business’s financial strength

31
Q

How do bond ratings affect the cost of debt to the issuing firms?

A

a bond’s rating is an indicator of its default risk, so the rating has a direct, measurable influence on the interest rate required by lenders and hence on the firm’s cost of debt capital

32
Q

Real Risk Free Rate

A

RRF; the rate of interest on the riskiness investment in the absence of inflation

33
Q

Inflation Premium

A

IP; the premium that debt investors add to the real risk free interest rate to compensate for inflation

34
Q

Risk Free Rate

A

RF; the rate of interest on the riskiness investment when inflation effects are considered

35
Q

Default risk premium

A

DRP; the premium that creditors demand for bearing default risk. the greater the default risk, the higher the default risk premium.

36
Q

Liquid asset

A

an asset that can be quickly converted to cash at its fair market value

37
Q

liquidity premium

A

LP; the premium that debt investors add to the base interest rate to compensate for lack of liquidity

38
Q

Price Risk

A

the risk that rising interest rates will lower the values of outstanding debt

39
Q

Price Risk Premium

A

PRP; the prem that debt investors add to the base rate to compensate for bearing price risk

40
Q

Call Risk Premium

A

the premium that debt investors add to the case rate to compensate for bearing call risk

41
Q

Equation for the require interest rate on a debt security

A

RRF + IP + DRP + LP + PRP + CRP

42
Q

What do the interest rates on treasury securities include?

A

liquidity premium and price risk premium

43
Q

Why are callable bonds riskier for investors than similar bonds without a call provision?

A

their is a lot of uncertainty about holding periods

44
Q

Par Value

A

The stated (face) values of a bond; the principal amount that must be repaid to the issuer

45
Q

Maturity Date

A

the date on which the principal amount of a loan must be repaid

46
Q

Coupon (interest) rate

A

the stated annual rate of interest on a bond, which is equal to the coupon payment divided by the par value

47
Q

coupon payment

A

the dollar amount of annual interest on a bond

48
Q

interest (current) yield

A

the annual interest return on a bond, defined as the interest payment divided by the beginning of the year price

49
Q

capital gains yield

A

the percentage capital gain (loss) over some period, defined as the price appreciation divided by the beginning of period price

50
Q

Yield to Maturity

A

the expected rate of return on a debt security assuming it is held until maturity

51
Q

Yield to Call

A

the expected rate of return on a debt security assuming it is held until it is called

52
Q

Interest Rate Risk

A

the risk to current debtholders that stems from interest rate changes. interest rate risk has two components; price risk and reinvestment rate risk

53
Q

reinvestment rate risk

A

the risk that falling interest rates will lower the returns on cash flows from bond investments that are reinvested during the life of the bond (or investment horizon)

54
Q

What is the general valuation model?

A

its a four step process.

  1. Estimate the expected cash flow stream
  2. Assess the riskiness of the stream
  3. Set the required rate of return
  4. Discount and sum the expected cash flows
55
Q

How are bonds valued?

A

a bond represents an annuity plus a lump sum, and its value is calculated as the present value of this cash flow stream

healthcare finance (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions