S6: Discount Cash Flow Valuation

Question 1

Multiple Cash Flows

Answer 1

Receiving, investing, or paying a series of cash flows over time instead of a lump sum

Question 2

Lump Sum

Answer 2

You receive money up front in one large payment

Question 3

Uneven cash flows

Answer 3

Payments or investments vary and we can’t use pmt key -> Use CF key instead

Question 4

Annuities

Answer 4

Purchase a stream of cash flows that are fixed amounts or grow at a fixed rate over a period of time

Question 5

Ordinary annuity

Answer 5

Payments at end of period

Question 6

Annuities due

Answer 6

Payments at beginning of period

Question 7

Perpetuities

Answer 7

Annuities where cash flows continue forever

Question 8

Preferred stock

Answer 8

Can pay dividends and are the “1st” residual claimants before common stock owners

Question 9

Dividend Aristocrats

Answer 9

Mature firms that have a long history (25+ years) of paying & steadily increasing their dividends

Question 10

Dividend Monarchs (kings)

Answer 10

50+ years of raising dividends (~12 in S&P 500)

Question 11

Why do beginning of the year payments increase both PV & FV of cash flows?

Answer 11

PV: Compounded one more period, FV: Discounted one less period