D.32 Bond and stock valuation concepts Flashcards
Explain the fundamental principles and methodologies used for valuing bonds and stocks, including the present value concept, dividend discount models for stocks, and the impact of interest rates on bond prices. (10 cards)
The current value of a future cash flow, discounted at an appropriate rate to reflect the time value of money.
Present Value
The value of an investment or cash flow at a specific point in the future, considering interest or growth over time.
Future Value
A valuation method that determines a stock’s price based on the present value of expected future dividends.
Dividend Discount Model
A valuation metric that compares a company’s stock price to its earnings per share (EPS), indicating how much investors are willing to pay per dollar of earnings.
Price-to-Earnings (P/E) Ratio
The total return expected on a bond if held until maturity, incorporating interest payments and any capital gain or loss.
Yield to Maturity
The fixed interest rate paid by a bond issuer to bondholders, expressed as a percentage of the bond’s face value.
Coupon Rate
A measure of a bond’s sensitivity to changes in interest rates, representing the weighted average time to receive the bond’s cash flows.
Duration
The difference between the present value of cash inflows and outflows of an investment, used to assess profitability.
Net Present Value
A model used to determine the expected return of an asset based on its risk-free rate, beta, and expected market return.
Capital Asset Pricing Model
A company’s total assets minus total liabilities, divided by the number of outstanding shares, representing the value per share if the company were liquidated.
Book Value per Share
