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cash flows

present value

simple loan

fixed-payment loan (fully amortized lo…

streams of cash payments to the holder of debt instruments

based on the commonsense notion that a dollar paid to you a y…

the lender provides the borrower with an amount of funds (cal…

the lender provides the borrower with an amount of funds, whi…

cash flows

streams of cash payments to the holder of debt instruments

present value

based on the commonsense notion that a dollar paid to you a y…

Investment portfolio choices

expected return

risk

determinants of portfolio choice

1.pg 88

the rate of return expected on an asset during a future period

the degree of uncertainty in the return on an asset

wealth expected return on asset risk liquidity information co…

Investment portfolio choices

1.pg 88

expected return

the rate of return expected on an asset during a future period

An average investor must weigh the ben…

If there is an excess demand for bonds…

If the expected gains on the stocks ri…

In the bond market, the seller is cons…

the lower returns on liquid assets

the interest rate will fall

the equilibrium interest rate will rise

the borrower

An average investor must weigh the ben…

the lower returns on liquid assets

If there is an excess demand for bonds…

the interest rate will fall

cash flows

present value

simple loan

fixed payment loan

cash payments to the holder of the security

today's value of a payment to be received in the future when…

a credit market instrument providing the borrower with an amo…

a credit market instrument that provides a borrower with an a…

cash flows

cash payments to the holder of the security

present value

today's value of a payment to be received in the future when…

Cash Flows

Present Value

Simple Loan

Fixed-Payment Loan

Cash payments to the holder of a security.

AKA Present Discounted Value... Today's value of a payment to be…

A credit market instrument that provides the borrower with an…

AKA Fully Amortized Loan... A credit market instrument that prov…

Cash Flows

Cash payments to the holder of a security.

Present Value

AKA Present Discounted Value... Today's value of a payment to be…

expected return

risk

diversification

systematic risk

the return expected on an asset during a future period

the degree of uncertainty in the return on an asset

dividing wealth among many different assets to reduce risk

the risk that is common to all assets of a certain type

expected return

the return expected on an asset during a future period

risk

the degree of uncertainty in the return on an asset

Cash flows

Consol or Perpetuity

Coupon Bond

Coupon rate

Cash payments to the holder of a security

A perpetual bond with no maturity date and no repayment of pr…

A credit market instrument that pays the owner a fixed intere…

The dollar amount of the yearly coupon payment expressed as a…

Cash flows

Cash payments to the holder of a security

Consol or Perpetuity

A perpetual bond with no maturity date and no repayment of pr…

present value

simple loan

fixed-payment loan

coupon bond

today's value of a payment to be received in the future when…

a credit market instrument providing the borrower with an amo…

a credit market instrument that provides a borrower with an a…

a credit market instrument that pays the owner a fixed intere…

present value

today's value of a payment to be received in the future when…

simple loan

a credit market instrument providing the borrower with an amo…

Yield to Maturity

Future Value Equation

Present Value

What makes the FV rise today?

The most accurate measure of interest rates... Commonly used as…

FV = PV (1 + i)^n

Based on the concept that $1 paid to you one year from now is…

The amount today is higher... The interest rate is higher... n is…

Yield to Maturity

The most accurate measure of interest rates... Commonly used as…

Future Value Equation

FV = PV (1 + i)^n

Determinants of Portfolio Choice

1) Wealth (determinant of portfolio ch…

Difference between Income and Wealth

2) Expected Rate of Return (Determinan…

1) wealth ... 2) expected rate of return ... 3) risk ... 4) liquidity…

we can assume that an increase in wealth will increase the qu…

Income is a person's earnings during a particular period, suc…

expected return = [(Prob of event 1 occurring) x (value of ev…

Determinants of Portfolio Choice

1) wealth ... 2) expected rate of return ... 3) risk ... 4) liquidity…

1) Wealth (determinant of portfolio ch…

we can assume that an increase in wealth will increase the qu…

yield to maturity

present value

simple loan

fixed payment loan

most accurate measure of interest rates. the interest rate th…

based on the concept of the fact that 1 dollar to you today i…

the lender provides the borrower with an amount of funds, whi…

lender provides borrower with an amount of funds, which must…

yield to maturity

most accurate measure of interest rates. the interest rate th…

present value

based on the concept of the fact that 1 dollar to you today i…

Cash Flows

Present Value

Simple Loan

Simple Loan PV Formula

The inflows and outflows of cash into and out of a business.

How much spending power money has today.

a credit market instrument providing the borrower with an amo…

PV = CF / ( 1+i )^n

Cash Flows

The inflows and outflows of cash into and out of a business.

Present Value

How much spending power money has today.

loanable funds theory

capital inflows

capital outflows

net capital inflows

real interest rates are determined by the supply and demand f…

funds provided to a country's investors by foreigners

funds provided to foreign investors by a country's savers

capital inflows minus capital outflows

loanable funds theory

real interest rates are determined by the supply and demand f…

capital inflows

funds provided to a country's investors by foreigners

Determinants of a Portfolio Choice

Wealth

Expected Rate of Return

Risk

1. Savers Wealth ... 2. Expected Rate of Return ... 3. Degree of Ri…

total value of assets a person owns minus liabilities

The rate of return expected on an asset during a future period

Degree of uncertainty in the return on an asset

Determinants of a Portfolio Choice

1. Savers Wealth ... 2. Expected Rate of Return ... 3. Degree of Ri…

Wealth

total value of assets a person owns minus liabilities

5 Portfolio determinates

Expected Return

Risk

Risk averse

1. Saver's wealth... 2. Required rate of return... 3. Degree of ris…

The return an asset should generate during a future period... (P…

The degree of uncertainty in the return on an asset

Choosing the asset with the lower risk when they have similar…

5 Portfolio determinates

1. Saver's wealth... 2. Required rate of return... 3. Degree of ris…

Expected Return

The return an asset should generate during a future period... (P…

Determinants of Asset Demand

An increase in wealth, expected return…

Risk Averse

Diversification

1. Wealth ... 2. Expected Returns ... 3. Liquidity ... 4. Risk ... 5. Inf…

increase demand

choose asset with lower risk when 2 assets have the same expe…

dividing wealth among different assets to reduce risk

Determinants of Asset Demand

1. Wealth ... 2. Expected Returns ... 3. Liquidity ... 4. Risk ... 5. Inf…

An increase in wealth, expected return…

increase demand

Loanable funds theory

Capital Inflows

Capital Outflows

Net Capital inflows

Real interest rates are determined by the supply and demand f…

Funds raised from foreign savers

Funds sent aboard

Capital inflows - Capital outflows

Loanable funds theory

Real interest rates are determined by the supply and demand f…

Capital Inflows

Funds raised from foreign savers

Cash flows

Present value

Simple loan

Four types of credit market instruments

streams of cash payments to the holder of a debt instrument

a dollar paid to you one year from now is less valuable than…

simplest debt instrument. lender provides borrower with an am…

1. simple loan 2. fixed-payment loan 3. coupon bond 4. discou…

Cash flows

streams of cash payments to the holder of a debt instrument

Present value

a dollar paid to you one year from now is less valuable than…

Yield to maturity

Present Value (or present discounted v…

What a bond earns (its rate of return)…

Coupon Bond

The most accurate measure of interest rates; ... the present val…

A dollar paid to you one year from now is less valuable than…

interest rate

pays the owner of the bond a fixed interest payment (coupon p…

Yield to maturity

The most accurate measure of interest rates; ... the present val…

Present Value (or present discounted v…

A dollar paid to you one year from now is less valuable than…

monetary transmission mechanism

capital crunch

investment multiplier

fiscal policy

process through which monetary policy affects output

a fall in the capital that forces banks to reduce lending

effect of firms' earnings on investment, which magnifies fluc…

the government's choice of taxes and spending

monetary transmission mechanism

process through which monetary policy affects output

capital crunch

a fall in the capital that forces banks to reduce lending

present value

simple loan

4 Types of Credit Market Instruments

Fixed-payment loan

a dollar paid to you one year from now is less valuable than…

lender provides the borrower with amount of funds (the princi…

1. Simple Loan... 2. Fixed-Payment Loan... 3. Coupon Bond... 4. Discou…

the lender provides the borrower with an amount of funds that…

present value

a dollar paid to you one year from now is less valuable than…

simple loan

lender provides the borrower with amount of funds (the princi…

present value

simple loan eq

4 types of credit market instrument

fixed payment loan

is based on a dollar paid to you one year from now is less va…

Present Value= Future Cash Flow/ (1+i)^n

1. simple loan 2. fixed payments 3. coupon bond 4. discount b…

the lender provides the borrower with an amount of funds whic…

present value

is based on a dollar paid to you one year from now is less va…

simple loan eq

Present Value= Future Cash Flow/ (1+i)^n

Expected return

risk

Diversifaction

desirable characteristics of a financi…

the rate of return expected on an asset during a future perio…

the degree of uncertainty in the return on an asset

the division of wealth among many different assets to reduce…

liquidity.. info easy

Expected return

the rate of return expected on an asset during a future perio…

risk

the degree of uncertainty in the return on an asset

Compound interest is the idea:... A) Tha…

Which of the following best expresses…

Suppose Paul borrows $4000 for one yea…

A saver knows that she will receive $1…

That you get interest on interest.

PV(1+i)^2

$4,280

5.26%

Compound interest is the idea:... A) Tha…

That you get interest on interest.

Which of the following best expresses…

PV(1+i)^2

Present Value

Yield to Maturity

Simple Loan

Fixed Payment Loan

a dollar paid to you one year from now is less valuable than…

the interest rate that equates the present value of cash flow…

lender provides borrower with funds that must be paid back by…

lender provides borrower with an amount of funds that the bor…

Present Value

a dollar paid to you one year from now is less valuable than…

Yield to Maturity

the interest rate that equates the present value of cash flow…

cash flows

present value (present discounted value)

simple loan

yield to maturity

streams of cash payments

a dollar paid to you one year from now is less valuable than…

lender provides borrower with an amount of funds (principal)…

interest rate that equates the present value of cash flow pay…

cash flows

streams of cash payments

present value (present discounted value)

a dollar paid to you one year from now is less valuable than…

cash flows

present value (present discounted value)

simple loan

yield to maturity

streams of cash payments

a dollar paid to you one year from now is less valuable than…

lender provides borrower with an amount of funds (principal)…

interest rate that equates the present value of cash flow pay…

cash flows

streams of cash payments

present value (present discounted value)

a dollar paid to you one year from now is less valuable than…

The expected an return on investment is:

Risk-loving

Risk-neutral

Most investors are risk averse

Expected return = [(Probability of event 1 occurring) X (Valu…

investors prefer to hold risky assets with the possibility of…

investors make decisions on the basis of expected returns, ig…

choose the asset with the lower risk when two assets have the…

The expected an return on investment is:

Expected return = [(Probability of event 1 occurring) X (Valu…

Risk-loving

investors prefer to hold risky assets with the possibility of…

A credit market instrument that pays t…

Each Federal Reserve bank has nine dir…

For simple loans, the simple interest…

The price of a consol equals the coupo…

coupon bond.

six; three

equal to

divided by the interest rate

A credit market instrument that pays t…

coupon bond.

Each Federal Reserve bank has nine dir…

six; three

Cash flow

Present value

Simple loan

Simple interest rate

Diferrent streams of cash payments to the holder with very di…

Commonsense notion that a dollar paid to you one year from no…

Simplest kind of debt instrument that the lender provides the…

Interest payment divided by the amount of the loan is a natur…

Cash flow

Diferrent streams of cash payments to the holder with very di…

Present value

Commonsense notion that a dollar paid to you one year from no…

Determinants of portfolio choice (asse…

Wealth

Expected return

The expected return on an investment is:

The saver's wealth ... 2. The expected rates of return from dif…

An increase in wealth generally increases the quantity demand…

is the return expected on an asset during a future period.

Expected return = [(Probability of event 1 occurring) X (Valu…

Determinants of portfolio choice (asse…

The saver's wealth ... 2. The expected rates of return from dif…

Wealth

An increase in wealth generally increases the quantity demand…

Investors value liquidity in an asset…

A portfolio is a... A) brokerage house sp…

3) Economists believe that as a saver'…

4) As wealth decreases, which of the f…

B) liquid assets incur lower selling costs.

D) collection of assets.

C) increase the fraction of wealth held as common stock.

C) cash

Investors value liquidity in an asset…

B) liquid assets incur lower selling costs.

A portfolio is a... A) brokerage house sp…

D) collection of assets.

Loanable Funds Theory

Domestic Savings (Net capital)

Capital Inflows

Capital Outflows

Real Interest Rates are determined by the supply and demand f…

Capital Inflows-capital outflows

funds provided to a country investors by foreigners (US sells…

funds provided to foreign investors by a countries savers (US…

Loanable Funds Theory

Real Interest Rates are determined by the supply and demand f…

Domestic Savings (Net capital)

Capital Inflows-capital outflows

First Bank of the United States ( year…

What was the First Bank of Us capital ?

How much did U.S. gov own in stock in…

By 1811 how much stock was owned by fo…

1791-1811

10 million dollars

2 million dollars loaned to them by the bank

70% of stock

First Bank of the United States ( year…

1791-1811

What was the First Bank of Us capital ?

10 million dollars

Expected return

Risk

Diversification

Market Risk

The rate of return expected of an asset during a future period

the degree of uncertainty in the return of an asset

The division of wealth among assets to reduce risk

Risk that is common to all assets of a certain type, such as…

Expected return

The rate of return expected of an asset during a future period

Risk

the degree of uncertainty in the return of an asset

basis point

bond

compound interest

coupon bond

one one-hundredth of a percentage point

a financial instrument that promises a series of future payme…

the interest you get on interest as it accumulates over time

a bond offering annual coupon payments at regular intervals u…

basis point

one one-hundredth of a percentage point

bond

a financial instrument that promises a series of future payme…

Blank Endorsement

Payee

Cleared Check

Check Register

a signature on the back of a check

the person to whom a check is written

checks which the bank has paid and returned in your statement

a record of account deposits, withdraws, checks, fees and int…

Blank Endorsement

a signature on the back of a check

Payee

the person to whom a check is written

principal

neoclassical theory

perpetuity

coupon bond

amount of credit extended when one makes loan or purchases a…

marginal rate of substitution between present and future cons…

financial security that never matures, it pays interest forev…

pays a regular interest payment until maturity when face valu…

principal

amount of credit extended when one makes loan or purchases a…

neoclassical theory

marginal rate of substitution between present and future cons…

Present Value

Principal

Compounding

Discount Factor

The amount of money you need to invest today to yield a given…

The amount of money invested in a financial security or depos…

Earning interest that was earned in prior years

The amount by which a future value is divided to obtain its p…

Present Value

The amount of money you need to invest today to yield a given…

Principal

The amount of money invested in a financial security or depos…

The ________ interest rate is adjusted…

The ________ interest rate more accura…

The nominal interest rate minus the ex…

When the ________ interest rate is low…

Answer: A

Answer: B

Answer: A

Answer: C

The ________ interest rate is adjusted…

Answer: A

The ________ interest rate more accura…

Answer: B

The ________ is defined as the payment…

Which of the following are true concer…

The sum of the current yield and the r…

What is the return on a 5 percent coup…

Answer: C

Answer: A

Answer: A

Answer: D

The ________ is defined as the payment…

Answer: C

Which of the following are true concer…

Answer: A

The concept of ________ is based on th…

The present value of an expected futur…

An increase in the time to the promise…

With an interest rate of 6 percent, th…

Answer: A

Answer: A

Answer: A

Answer: C

The concept of ________ is based on th…

Answer: A

The present value of an expected futur…

Answer: A

aggregates

barter

coincidence of wants

commodity

the different measures that are complied from a collection of…

the exchange of one good and service for another good or serv…

occurs when two people want what each other has to offer

anything that is useful or has value

aggregates

the different measures that are complied from a collection of…

barter

the exchange of one good and service for another good or serv…

cost of borrowing momey on an annual b…

a decrease or loss in value

a detailed report of an individual's c…

time frame that a loan agreement is in…

annual percentage rate

depreciation

credit report

loan term

cost of borrowing momey on an annual b…

annual percentage rate

a decrease or loss in value

depreciation

Which of the following is NOT a major…

Which of the following is not an activ…

The _______ is made up of seven indivi…

Which of the following is currently a…

securities exchange commission

acting as an intermediary to match up lenders and borrowers i…

Board of Governors

regulating commercial baks and controlling monetary policy

Which of the following is NOT a major…

securities exchange commission

Which of the following is not an activ…

acting as an intermediary to match up lenders and borrowers i…

Consider a one-year discount bond that…

Consider a one-year bond that pays $1,…

A debt security that pays interest for…

Suppose you take out a car loan of $10…

$934.58

$1,442.31

a perpetuity

$313.36

Consider a one-year discount bond that…

$934.58

Consider a one-year bond that pays $1,…

$1,442.31

Cash Flows

Consol or Perpetuity

Coupon Bond

Coupon Rate

Cash payments to the holder of a security.

A perpetual bond with no maturity date and no repayment of pr…

A credit market instrument that pays the owner a fixed intere…

The dollar amount of the yearly coupon payment expressed as a…

Cash Flows

Cash payments to the holder of a security.

Consol or Perpetuity

A perpetual bond with no maturity date and no repayment of pr…

Checking Account

Liquid

Service Charge

Check Register

A type of bank account that allows you to write a check, with…

An investment that can be bought, sold, or converted to cash…

A fee you pay the bank for having an account

An account of all transactions through a checking account

Checking Account

A type of bank account that allows you to write a check, with…

Liquid

An investment that can be bought, sold, or converted to cash…

Present Value (PV)

PV =

CF =

i =

A dollar paid to you one year from now is less valuable than…

Today's (present) value

Future cash flow (payment)

The interest rate

Present Value (PV)

A dollar paid to you one year from now is less valuable than…

PV =

Today's (present) value