Brainscape's Knowledge GenomeTM

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


See full index

FNCE > Quiz 2 Review > Flashcards

Quiz 2 Review Flashcards

1
Q

PV

A

With how much money am I starting (do I need to start)?; The current dollar value of a future amount-the amount of money that would have to be invested today at a given interest rate over a specified period to equal the future amount.

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

FV

A

How much money will I have (do I want) at the end?; The value at a given future date of an amount placed on deposit today and earning interest at a specified rate.

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

Three Basic Patterns of Cash Flows

A

A single amount: A lump sum amount either held currently or expected at some future date.

An annuity: A level periodic stream of cash flow.

A mixed stream: A stream of unequal periodic cash flows

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

Compound Interest

A

Interest that is earned on a given deposit and has become part of the principal at the end of a specified period.

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

Principal

A

the amount of money on which interest is paid

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

Discounting Cash Flows

A

the process of finding present values; the inverse of compound interest

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

Ordinary (Deferred) Annuity

A

an annuity for which the cash flow occurs at the end of each period

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

Annuity Due

A

an annuity for which the cash flows occur at the beginning of each period

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

Perpetuity

A

an annuity with an infinite life, providing continual annual cash flow

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

Continuous Compounding

A

involves the compounding of interest an infinitive number of times per year at intervals of microseconds

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

Rule of 72

A

A technique for estimating the number of years required to double your money at a given rate of return (multiples that equal 72)

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

Rule of 115

A

A technique for estimating the number of years required to triple your money at a given rate of return (multiples that equal 115)

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

Bonds

A

Long-term debt instruments issued by companies, federal government, and state/local government

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

Bond Characteristics

A
  • Fixed promise-to-pay
  • First position for cash flows in case of liquidation
  • Lower relative risk to the bondholder
  • Lower relative rate of return (safer)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Factors Influencing Equilibrium Interest Rate

A

inflation, risk, liquidity preference

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

Inverted Yield Curve

A

expect rates to decline in the future because they expected inflation to decline (downward slopping)

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

Flat Yield Curve

A

an expectation of moderating inflation offsets the requirements for a higher rate to compensate for tying up cash

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

Normal Yield Curve

A

no change is expected in inflation; the requirement for a higher interest rate to compensate for tying up cash for a longer term shows through

19
Q

Corporate Bonds

A

a long-term debt instrument indicating that a corporation that borrowed a certain amount of money and promises to repay it in the future

20
Q

Coupon Interest Rate

A

the percentage of a bond’s par value that will be paid annually, typically in two equal semiannual payments, as interest

21
Q

Par Value (FV)

A

The amount borrowed by the company and the amount owed to the bond holder on the maturity date (never changes)

22
Q

Bond Maturity Date

A

The time at which a bond becomes due and the principal must be repaid

23
Q

Interest Rate Risk

A

The chance that interest rates will change and thereby change the required return and bond value

24
Q

Yield to Maturity (YTM)

A

The rate of return that investors earn if they buy a bond at a specific price and hold it until maturity

25
Q

Five Bond Elements of YTM

A
  • FV - face value
  • PMT - coupon payment (Annual PMT = coupon rate * FV)
  • N - # of periods (Typically semiannually; N=2)
  • RATE - YTM or Rate of Return
  • PV - price of the bond
26
Q

YTM < Coupon

A

Premium

27
Q

YTM > Coupon

A

Discount

28
Q

YTM = Coupon

A

Par

29
Q

Three Checks

A
  • 3 adjustments for semiannual
  • Did price / interest rate relationship hold (thumb thing)
  • Price between $700 and $1300
30
Q

When discounting a future value, the ________ the rate used, the higher the present value. When calculating a future value, the __________ the rate used, the high the future value

A

Lower, Higher

31
Q

The YTM on a bond with current price equal to its par value…

A

will always equal the coupon interest rate

32
Q

When the bond value differs from par, the YTM…

A

will differ from the coupon interest rate

33
Q

PV (Perpetuity) =

A

CF / r

34
Q

Mixed Stream

A

use npv in excel

35
Q

EAR

A

use effect in excel

36
Q

Nominal rate from EAR

A

use nominal in excel

37
Q

FV (bond)

A

par value

38
Q

PMT (bond)

A

coupon payment (coupon rate * FV)

39
Q

RATE (bond)

A

YTM or ROE

40
Q

PV (bond)

A

price of the bond (always negative)

41
Q

FV (bond)

A

usually $1,000

42
Q

Monthly

A

divide rate by 12 and multiply NPER by 12

43
Q

3 semiannual adjustement

A

PMT / 2
NPER *2
RATE / 2

FNCE (3 decks)

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