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Intro to Finance (Sophia) > Time Value of Money and Financial Securities > Flashcards

Time Value of Money and Financial Securities Flashcards

1
Q

Present Value (PV)

A

The value of money today.

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2
Q

Future Value (FV)

A

The value of money in the future.

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3
Q

Interest Rate

A

The percentage of an amount of money charged for its use for some period of time. It can also be thought of as the cost of not having money for one period or the amount paid on an investment per year.

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4
Q

Discounting

A

The process of finding the present value using the discount rate.

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5
Q

Accrue

A

To add or grow.

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6
Q

Multiperiod Investment

A

An investment that takes place over more than one period.

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7
Q

Period

A

The length of time during which interest accrues (t or n), usually 1 year.

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8
Q

Principal

A

The money originally invested or loaned, the basis for calculating interest and returns.

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9
Q

Single-Period Investment

A

An investment that takes place over one period, usually 1 year.

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10
Q

Compound Interest

A

An interest rate applied to multiple applications of interest during the lifetime of an investment.

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11
Q

Discount Rate

A

The interest rate used to discount the future cash flows of a financial instrument; the annual interest rate used to decrease the amounts of future cash flow to yield their present value.

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12
Q

Discounting

A

The process of finding the present value using the discount rate.

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13
Q

Simple Interest

A

Interest paid only on the principal.

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14
Q

Annuity

A

An investment in which regular payments are made over the course of multiple periods.

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15
Q

Annuity Due

A

An investment with fixed payments that occur at regular intervals, paid at the beginning of each period.

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16
Q

Ordinary Annuity

A

An investment with fixed payments that occur at regular intervals, paid at the end of each period.

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17
Q

Perpetuity

A

An investment in which the periodic payments begin on a fixed date and continue indefinitely.

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18
Q

Net Present Value

A

The present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting from the decision.

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19
Q

Capitalization

A

The process of finding the future value of a sum by evaluating the present value.

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20
Q

Growth Rate

A

The percentage by which payments grow each period.

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21
Q

Yield

A

The amount in cash that returns to the owners of a security.

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22
Q

Interest Rate

A

The percentage of an amount of money charged for its use for some period of time. It can also be thought of as the cost of not having money for one period or the amount paid on an investment per year.

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23
Q

Monetary Policy

A

The process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

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24
Q

Opportunity Cost

A

The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative.

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25
Term Structure of Interest Rates
The relationship between the interest on a debt contract and the maturity of the contract.
26
Yield Curve
The graph of the relationship between the interest on a debt contract and the maturity of the contract.
27
Bond Indenture
A legal contract issued to lenders.
28
Convertibility
Quality of a bond that allows the holder to convert it into shares of common stock in the issuing company or cash of equal value at an agreed-upon price.
29
Corporate Bond
A bond issued by a corporation to raise money effectively in order to expand its business.
30
Credit Rating Agency
A company that assigns credit ratings to issuers of certain types of debt obligations, as well as to the debt instruments themselves.
31
Municipal Bond
A bond issued by an American city or other local government or their agencies.
32
Treasury Bond
A government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt, with a maturity of 20 years to 30 years.
33
Bond
A bond is an instrument of debt; it is a debt security. Bonds provide a way for governments and businesses to borrow money in large amounts for a longer period of time. A bond is a form of a loan. The holder of the bond is the lender, or the creditor; the issuer of the bond is the borrower, or the debtor. The interest rate is the coupon. These bonds provide the buyer with external funds to finance long-term investments, and in the case of government bonds, they finance current expenditures. There are two features of a bond that are the main determinants of a bond’s coupon rate: 1. Credit quality 2. Time to maturity
34
Callable Bond
A bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.
35
Coupon Rate
Amount of interest that the bondholder will receive per payment, expressed as a percentage of the par value.
36
Maturity Date
The final payment date of a loan or other financial instrument.
37
Par Value
The amount of money a holder will get back once a bond matures.
38
Sinking Fund
A method by which an organization sets aside money to retire debts.
39
Asset-Backed Security
A bond whose cash flows are backed by the output of other assets, like mortgage-backed securities.
40
Convertible Bond
A bond that lets the bondholder trade the bond for a number of shares of common stock.
41
Floating-Rate Bond
A bond that has a variable coupon equal to a money market reference rate (e.g., LIBOR) plus a quoted spread.
42
Government Bond
A bond issued by a national government denominated in the country’s domestic currency.
43
Inflation-Linked Bond
A floating-rate bond with an index that is tied to the inflation rate.
44
Subordinated Bond
A bond that has a lower priority than other bonds in case of liquidation.
45
Zero-Coupon Bond
A bond with no coupon payments, bought at a price lower than its face value, with the face value repaid at the time of maturity.
46
Selling At Par
A bond’s coupon rate is equal to its yield to maturity (YTM).
47
Selling at a Discount
A bond’s coupon rate is less than its yield to maturity (YTM).
48
Selling at a Premium
A bond’s coupon rate is more than its yield to maturity (YTM).
49
Default Risk
The risk that a bond issuer will default on any type of debt by failing to make payments that it is obligated to make.
50
Interest Rate Risk
The risk associated with changes in the price of a bond caused by changes in the general interest rate levels in the economy.
51
Reinvestment Risk
The risk that a bond is repaid early and the investor has to find a new place to invest with the risk of lower returns.
52
Preemption
The right of a shareholder to purchase newly issued shares of a business entity before they become available to the general public so as to protect individual ownership from dilution.
53
Shareholder
An individual who legally owns at least one share of stock in a company and has certain rights with regards to the company because of this.
54
Stock
The original capital paid to a business by its founders and serving as a security for investors.
55
Common Stock
A form of equity and type of security; it is also known as a voting share or an ordinary share.
56
Dividends
Payments made by a corporation to its shareholder members.
57
Preferred Stock
An equity security that has the properties of both an equity and a debt instrument and is ranked higher than common stock.
58
Convertible Preferred Stock
Stock that can be exchanged for a predetermined number of company common stock shares.
59
Liquidation
The process by which a company (or part of a company) is brought to an end and the assets and property of the company are redistributed.
60
Participating Preferred Stock
Stock that provides shareholders the chance to receive extra dividends, contingent upon the company reaching predetermined financial goals.
61
Preemption
The right of a shareholder to purchase newly issued shares of a business entity before they become available to the general public so as to protect individual ownership from dilution.
62
Stock Exchange
A form of exchange that provides services for stockbrokers and traders to trade stocks, bonds, and other securities.
63
Voting Rights
Rights that are generally associated with common stock shareholders with regard to business entity matters (such as electing the board of directors or establishing corporate policies).
64
Market Capitalization
The total market value of the equity in a publicly traded entity.

Intro to Finance (Sophia) (4 decks)

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