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finance > final > Flashcards

final Flashcards

1
Q

the stated interest payment made on a bond

A

coupon

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2
Q

the principal amount of a bond that is repaid at the end if the term; also called par value

A

face value

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3
Q

the annual coupon divided by the face value of a bond

A

coupon rate

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4
Q

specific date on which the principal amount of a bond is repaid

A

maturity

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5
Q

the rate required in the market on the bond. also called the yield. this will be the “r” we use to calculate price and is quoted as APR

A

yield to maturity

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6
Q

a level stream of cash flows which continue forever

A

perpetuity

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7
Q

a level stream of cash flows for a fixed period of time

A

annuity

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8
Q

an annuity for which the cash flows occur at the beginning of the period

A

annuity due

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9
Q

the nominal stated interest rate that ignores the effect of compound interest within the year

A

APR

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10
Q

the effective annual interest rate which takes into the effect of compound interest

A

EAR

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11
Q

make the same payment every period over the life of the loan

A

amortized loan

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12
Q

the present value of the bonds future cash flows

A

the price of the bond is equal to

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13
Q

the bonds trade at par

A

when the coupon rate is = to the YTM then the price is = to the face value of the bond

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14
Q

the bonds trade at a discount

A

when the coupon rate is less than YTM then the price of the bond is less than the face value

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15
Q

the bonds trade at a premium

A

when the coupon rate is more than YTM then the price of the bond is more than the face value

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16
Q

annual coupon divided by current price

what it is:
-measures cash flow portion of your return

what it’s not:
-measure of total return

A

current yield

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17
Q

pays you the face value back at the end

  • there are no cash flows
  • always trade at a discount
A

zero coupon bonds

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18
Q

the risk of a change in the value of a bond because of a change in the interest rate

A

interest rate risk

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19
Q

bond prices and market interest rates move in ___ directions

A

opposite

20
Q

all other things being equal, the longer the time to maturity, the ___ the interest rate risk

A

greater

21
Q

all other things being equal, the lower the coupon rate, the ___ the interest rate risk

A

greater

22
Q

when a bond’s coupon rate is ___ than the YTM, the bond’s price will be greater than its par value

A

greater

23
Q

when a bond’s coupon rate is ___ the YTM, the bond’s price will be equal to its par value

A

equal to

24
Q

when a bond’s coupon rate it ___ than the YTM, the bond’s price will be less than its par value

A

less

25
Q

the relationship between interest rates and time to maturity of a debt security

3 components:

  • real interest rate (if there’s no inflation)
  • inflation risk premium
  • interest rate risk premium
A

term structure

26
Q

the written agreement between the corporation and the lender detailing the terms of the debt issue

A

indenture

27
Q

maturity, par value, coupon rate, and frequency

A

terms of a bond

28
Q

collateral against obligation

A

security

29
Q

no collateral

A

unsecure

30
Q

our position relative to other lenders

A

seniority

31
Q

requires firm to retire certain portion of their bonds each year

-have fewer bonds outstanding

A

sinking fund

32
Q

equal to annual coupon payment

-you get face value + call premium

A

call provision

33
Q

the price of a bond is equal to the ___ ___ of the bond’s ___ cash flow

A

present value

-future

34
Q
  • dividends

- price we sell the stock for

A

common stock cash flows

35
Q

zero growth

  • constant growth
  • non constant growth
A

3 types of dividends

36
Q
  • dividends don’t increase in dollar amount

- dividends are paid every period forever

A

zero growth

37
Q

dividends increase at a fixed rate each period

-dividends are paid every period forever

A

constant growth

38
Q

the dividend income portion of a stock’s return

A

dividend yield

39
Q

the price change portion of a stock’s return

A

capital gains yield

40
Q

when firm is involved in transaction and making money

A

primary market

41
Q

buying and selling among investors

A

buying and selling among investors

42
Q

buys and sells from his own account

A

dealers

43
Q

arranges a buyer and seller together and facilitates the transaction

A

brokers

44
Q

physical location

-most electrical trading

A

NYSE

45
Q

not a physical location

-computer network of dealers who buy and sell stock

A

NASDAQ

46
Q

measure of how much value is created or added today by undertaking an investment

A

NPV

47
Q

discount rate of return that makes the net present value of a project equal to 0

-BEWARE non normal cash flows

A

IRR

finance (1 decks)

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