Solomon Ch1 Deck 8 Flashcards
Net income is transcribed to
the equity portion of the balance sheet
Income on the income statement is
the difference between revenues and expenses
The equity portion of the balance sheet includes net income from current period’s Income Statement and
may also reflect dividends paid
to hedge against currency risk from holding a security which pays in a foreign currency
enter into a forward currency contract to sell the currency at an acceptable rate and then buy currency at the current spot rate, pocketing the difference
Enterprise Value full equation
Market Cap + (Value of all Interest Bearing debt - Cash and Cash Equivalents) + Market Value of Preferred Stock + Value of Minority interests
The cost of the whole enterprise if it was purchased is the
Enterprise Value
downward trend in overall investment depressing individual securities
Systematic Risk
Debt to equity is calculated using
shareholder’s equity
Annuities limit liquidity with
penalties for taking out money before surrender period is over
Dividing an investment into what is needed each year and purchasing treasury notes that mature at each year is called
laddering treasury notes
The discount rate used on the dividend discount model is
rate of return that could be expected on another investment, often the WACC
TIPS have 3 components of return:
- Fixed Interest Rate (multiplied by second)
- Principal Adjusted by CPI changes
- Appreciation of depreciation associated with changes in inflation and interest rates
Upon maturity, TIPS holders are paid
the greater of the original principal amount and the adjusted principal amount
TIPS are taxed on both
interest and unrealized gains in principal
value for profit or loss on stock index future
(value of stock index on maturity date - futures price when contract entered into) x multiplier that scales the size of contract
Regulation S-K requires that a bona fide
price range be put into the preliminary prospectus
SEC guidance suggests bona fide price range for stocks priced below $20 be
a $2 range (plus and minus $1)
SEC guidance suggests bona fide price range for stocks above $20 to be
20% of the upper endpoint of the range
With regards to money supply, the higher number always
includes the lower number (M3 includes M2 and M1)
Example of M1
Cash and Coins
Example of M2
Savings deposits and non-institutional money markets
Example of M3
Large liquid assets and large time deposits
expenses associated with starting a new business such as legal fees, business filing fees and registration fees
Organization costs
Organization costs are handled on the balance sheet by
amortizing them as an intangible asset
