Lectrure 3

Question 1

What is an asset =

Answer 1

Sequence of cash flows

Question 2

What is the value of an asset

Answer 2

Value of all its future cash flows

Question 3

Asset 0 =

Answer 3

CF1, CF2, …, CFt

Question 4

What does a bond obligate

Answer 4

Obligates the borrower to make specified payments to the lender of the bond

Question 5

What do bond holders not own

Answer 5

The entity that issues the bond

Question 6

What is it called the periodically fixed interest payment

Answer 6

Coupon

Question 7

When do they repay the fixed amount

Answer 7

Date of maturity

Question 8

Money market =

Answer 8

Short term issues that mature within one year

Question 9

Notes =

Answer 9

Intermediate term issues that matures between 1 -10 years

Question 10

Bonds =

Answer 10

Long term obligation with maturity greater than 10 years

Question 11

Face( par) value

Answer 11

Payment at the maturity of the bond

Question 12

Coupon

Answer 12

Interest payments paid to the bond holders

Question 13

Coupon rate

Answer 13

Annual interest payment as a percentage of the face value

Question 14

Zero coupon bond

Answer 14

Coupon rate = 0

Question 15

Maturity date

Answer 15

When all coupon payments are made and principle repaid

Question 16

Who are the investors in bonds

Answer 16

Individuals
Pension funds
Banks
Insurnace companies
Property companies

Question 17

Who can be issuer of bonds

Answer 17

Governments
Corperations
International issues

Question 18

Who are treasury securities issued by

Answer 18

Us treasury

Question 19

What’s good about treasury securities

Answer 19

Backed by full faith and credit of us
Considered to be free from credit risk

Question 20

What are treasury strips

Answer 20

us treasury doesn’t off zero coupon bonds so investment bankers began stripping the coupons from treasuries to create zero coupon securities to meet investor demands

Question 21

What are tips

Answer 21

Makes semi annual coupon interest payments at a fixed rate

Question 22

What happens with the par value of tips

Answer 22

Begins at 1000 dollars and are adjusted semiannually for changes in CPI

Question 23

Secured bonds

Answer 23

Secured against assets s

Question 24

Unsecured bonds

Answer 24

Not backed by collaterals

Question 25

Subordinated debentures

Answer 25

Lower priority in the event of bankruptcy

Question 26

Accrued interest

Answer 26

Arise when bond trades between coupon dates

Question 27

What a re price quotes

Answer 27

Percentage of par

Question 28

Clean bond prices

Answer 28

Quoted price is clean

Question 29

DIrty bond price

Answer 29

Clean price plus accrued interest

Question 30

Yield to maturity is the …

Answer 30

Opportunity cost of capital for a bond

Question 31

When is the only payment for 0 coupon bonds

Answer 31

At maturity

Question 32

What are t bills

Answer 32

Government zero coupon bonds with a maturity of up to one year

Question 33

Price o zero coupon bonds =

Answer 33

Par value / (1+yield %)

Question 34

Value of coupon bond worth single discount rate

Answer 34

Present value of the interest annuity payments + present value of the par value (Interest payment/yield %) * (1-(1+yield%)^t) + par value/ (1+yield%)^t

Question 35

When bond price is lower than par

Answer 35

Coupon rate < yield to maturity

Question 36

When bond price is larger than par

Answer 36

Coupon rate > yield to maturity

Question 37

Bond price = par value

Answer 37

Coupon rate = yield to maturity

Question 38

What is relationship between bond price and yield to maturity

Answer 38

As price decreases, YTM increases

Question 39

Common stock

Answer 39

Ownership shares in publicly held corperations

Question 40

What is the income for shares

Answer 40

Dividends

Question 41

Primary market of stocks

Answer 41

New securities

Question 42

Secondary stock market

Answer 42

Previously issued securities

Question 43

private equity

Answer 43

Asset class consisting of equity securities in operations companies not listed on the public stock exchange

Question 44

Market capitalisation

Answer 44

Total value of a companies outstanding shares

Question 45

P/E ratio

Answer 45

Ratio of stock price to earnings per share

Question 46

Dividend yield

Answer 46

Dividends paid over share price

Question 47

Book value

Answer 47

Net worth of firm according to balance sheet

Question 48

Liquidation value

Answer 48

Net proceeds that could be realised by selling firms assets and paying of its creditors

Question 49

Market value

Answer 49

Value of the firm determined by its investors who would be willing to purchase company

Question 50

Intangibale assets

Answer 50

Many assets can’t be quantified for example a companies brand or managerial expertise

Question 51

Going concern value

Answer 51

Difference between company’s actual value and its book or liquidation value

Question 52

Intrinsic valuation

Answer 52

Value of a asset of a function of its fundamentals

Question 53

What is used to estimate intrinsic cash flows q

Answer 53

Discounted cash flows models

Question 54

Relative valuation

Answer 54

Value of asset estimated by what investors would pay for similar asset

Question 55

Contingent claim valuation

Answer 55

When cash flows of an asset are contingent on an external event

Question 56

How is value estimated for contingent claim valuation

Answer 56

Option pricing models