value for investors Flashcards
1
Q
financial assets
A
represent a claim to a future financial cash flow
2
Q
financial instruments
A
assets that are paper or digital form
3
Q
financial securities
A
instruments where a secondary market exists; can buy and sell after conceived
4
Q
debt
A
- loans
- bonds
5
Q
bond characteritiscs
A
principal = face value
period = maturity
interest = coupon
repayment = regular coupon face value at maturity
no ammortisation
6
Q
bond price
A
- PV of all future cash flows
- PV of coupon + PV of face value
- PV of ordinary annuity + PV of single cash flow
7
Q
coupon rate
A
- reflects actual rate received by investors
- fixed like bank interest rate
- only used to calculate coupon repayment
8
Q
yield to matury
A
- reflects market rate
- opportunity cost
- similar to IRR as it represents highest discount rate, higher than coupon rate
9
Q
equity
A
- ordinary shares
- preferred shares
10
Q
ordinary shares
A
- optional payment of dividends
- must be issued when incorporated
- grants proportional ownership rights
- shareholders entitled to RESIDUAL cash flows left after bills are paid
- shareholders have limited liability;
11
Q
preferred shares
A
- obliged to pay regular dividends
- ## rank ahead of ordinary shares, but behind debt in case of bankruptcy
12
Q
dividend growth requires
A
- growth in earnings and cash flows
- positive NPV projects
13
Q
growth in earnings and cash flows
A
- revenue and lower costs
- more volume/product lines
- increased efficiency/margins
- requires temporary high investment
14
Q
reinvestment problem
A
- young firms should retain more
- old firms should payout more
- share price only increases if ROI>re
15
Q
reinvested with high ROI
A
increases share price relative to 100% payout because future growth makes up for foregone dividends
