Home
Subjects
Create
Search
Log in
Sign up
Upgrade to remove ads
Only $2.99/month
HW Set 22: The basic tools of finance
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Terms in this set (18)
Finance
field that studies how people make decisions regarding the allocation of resources over time and the handling of risk
Key issues of finance
time value of money
managing risk
asset valuation
Present Value
the amount of money today that would be needed, using the prevailing interest rate
How much money that you will receive in T years is worth what now?
Future Value
the amount of money in the future than an amount of money today will yield given the prevailing interest rate
How much money will you need to save now to have x amount of money in the future
PV0
present value today in time 0 of a future value of money recieved in year t
FVt
the future value in year t of a current sum of money in year 0
FVt (equation)
PV0 * (1+r)^t
PV0 (equation)
FVt / (1+t)^t
compounding
the accumulation of a sum of money, in say, a bank account where the interest earned remains in the account to earn additoinal interest in the future
discoutning
the process of finding the present value of a future sum of money
prices of bonds and interest rates are
inversely related
one year treasury bill
Pay Pb in time 0, get F (face value) one year from now (t=1)
return on the interest rate = ( (F - Pb) / Pb ) * 100
coupon bond
pay Pb at tie t, receive a coupon payment = C every year, when bond matures in year N also receive F (face value)
Pb = C/(1+ r)^1 + C/(1 + r)^2 + ... + C/( 1+r )^n-1 + (C+F)/(1+r)^n
Perpetuity
pays C every period forever, the bond never fully matures
Pb = C/(1+ r)^1 + C/(1 + r)^2 + ... forever
Price of a stock
dividend / r
Net Present Value
NPV = F1/(1+r)^1 + F2/(1+r)^2 + ... + Fn/(1+r)^n - Co
When to reject a stock
NPV < 0
When to undertake a stock
NPV > 0
You might also like...
Chapter 6 Time Value of Money
24 terms
Personal Finance Ch. 3
17 terms
Chapter 1: The Value of Money
24 terms
FIN 201 Chapter 5
25 terms
Other sets by this creator
Chapter 8: What Genes Are
21 terms
Mechanical Properties of Metals
27 terms
Demand and Supply
32 terms
Production Possibilities Curve
23 terms
Other Quizlet sets
TCP & UDP Ports Quiz
19 terms
NUR 171 Exam 3: Endocrine
124 terms
religion ch.9
14 terms
Chapter 1 Personal Trainer Manual 5th Edition
46 terms