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Shakya Financial Management final terms
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Terms in this set (21)
Payment at the maturity of the bond. Usually $1,000 in the U.S
Face Value
Interest payment made to bondholders
Coupon
Security that obligates the issuer to make specific payments to the bondholder
Bond
The price of a bond is the Present Value of all cash flows generated by the bond (i.e. coupons and face value) discounted at the required rate of return
Bond Pricing
= PV of coupons + PV of par
= PV of annuity + PV of lump sum
Bond Value
the interest rate required in the market on a bond
Yield to Maturity
Fixed-rate instrument in which the coupon payment is fixed and typically paid in two semiannual installments.
Level Coupon Bond
Bonds that pay no interest but have a single payment at maturity. Sold at discount.(Why?) The size of the discount depends on prevailing interest rate.
Pure Discount Bond
Bonds that permit the issuer to avoid interest obligations for a certain period of time
Deferred-Coupon Bond
Bonds that last forever and only pay interest
Perpetuity Bonds
Total net income per period per dollar invested
Rate of return:
The risk that a bond issuer may default on its bonds
Default or Credit Risk
The additional yield on a bond that investors require for bearing credit risk
Default premium
A set of comprehensive principles and rules used to value real investments
Capital Budgeting
The NPV of a project is the PV of all the future inflows of the project minus the cost of implementing the project
NPV Method
The number of years before the cumulative forecasted cash flows equal the initial investment.We don't consider the time value of money!
Payback Period
Expenses that have already been paid and which cannot be changed by investment decision
Sunk Costs
Opportunity costs: cash flows that can be realized from putting assets-in-place to use in different projects.
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Net Working capital (NWC, or working capital), measures the amount of liquid assets that can be applied to firm's operation
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Overhead: The ongoing administrative expenses of a business which cannot be attributed to any specific business activity, but are still necessary for the business to function
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Depreciation = the allocation of the cost of an asset over the expected life of the asset for accounting and tax purposes
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