#### Study sets matching "money banking chapter 4"

#### Study sets matching "money banking chapter 4"

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

yield to maturity

present value

simple loan

fixed payment loan

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

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

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

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

yield to maturity

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

present value

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

Present Value

Why is a dollar you receive today more…

Interest Rates & Bond Prices

Suppose that you want to have $500 two…

Today's value of a payment to be received in the future when t…

Because the dollar you receive today can be invested and start…

Pv=CF/(1+i)n... 453.51=$500.00/(1+.05)^2

Present Value

Today's value of a payment to be received in the future when t…

Why is a dollar you receive today more…

Because the dollar you receive today can be invested and start…

An average investor must weigh the bene…

If there is an excess demand for bonds…

If the expected gains on the stocks ris…

In the bond market, the seller is consi…

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 bene…

the lower returns on liquid assets

If there is an excess demand for bonds…

the interest rate will fall

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 pri…

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

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 pri…

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 t…

a credit market instrument providing the borrower with an amou…

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

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 t…

Will a dollar be worth more tomorrow or…

Is $1 dollar worth more now or later?

Do bondholders fare better when the YTM…

Why would a government want to issue a…

Worth more when the interest rate is 10% bc you youre paying l…

Now because you put that $1 dollar in the bank and accumlate i…

Decreases because when the YTM decreases, the price goes up

Because they would recieve steady payments forever. Perpetuity…

Will a dollar be worth more tomorrow or…

Worth more when the interest rate is 10% bc you youre paying l…

Is $1 dollar worth more now or later?

Now because you put that $1 dollar in the bank and accumlate i…

Determinants of Portfolio Choice

1) Wealth (determinant of portfolio cho…

Difference between Income and Wealth

2) Expected Rate of Return (Determinant…

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

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

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

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

Determinants of Portfolio Choice

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

1) Wealth (determinant of portfolio cho…

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

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 amou…

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.

Time Value of Money

Simple loan

Discounting the future

Fixed payment loan (amortized loan)

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

A loan where the lender provides the borrower with an amount o…

The process of calculating today's value of dollars received i…

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

Time Value of Money

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

Simple loan

A loan where the lender provides the borrower with an amount o…

Loanable funds theory

Capital inflows

Capital outflows

Net capital inflows

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

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 fo…

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 Ris…

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 Ris…

Wealth

total value of assets a person owns minus liabilities

fixed-payment loan (fully amortized loa…

coupon bond

discount bond (zero coupon bond)

yield to maturity

borrower must repay fixed amt every period consisting of part…

fixed interest payment is made until maturity date, fv due

bought at price below its face value and face value is repaid…

the interest rate that equates the pv of the cash flow payment…

fixed-payment loan (fully amortized loa…

borrower must repay fixed amt every period consisting of part…

coupon bond

fixed interest payment is made until maturity date, fv due

loanable funds theory

capital inflows

capital outflows

net capital inflows

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

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 fo…

capital inflows

funds provided to a country's investors by foreigners

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 provi…

Cash Flows

Cash payments to the holder of a security.

Present Value

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

medium of exchange

unit of account

store of value

monetary aggregates

function of money; used to pay for goods and services

function of money; money is used to measure value in an economy

function of money; a repository of purchasing power available…

measures of the money supply

medium of exchange

function of money; used to pay for goods and services

unit of account

function of money; money is used to measure value in an economy

Yield to maturity

Present Value (or present discounted va…

What a bond earns (its rate of return)…

Coupon Bond

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

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

interest rate

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

Yield to maturity

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

Present Value (or present discounted va…

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

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

Which of the following best expresses t…

Suppose Paul borrows $4000 for one year…

A saver knows that she will receive $10…

That you get interest on interest.

PV(1+i)^2

$4,280

5.26%

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

That you get interest on interest.

Which of the following best expresses t…

PV(1+i)^2

future value

Rule of 72

present value

bond

the value on some future date of an investment made today

divide the annual interest rate into 72 then plug into calcula…

is the value today of a payment that is promised to be made in…

a promise to make a series of payments on specific future dates

future value

the value on some future date of an investment made today

Rule of 72

divide the annual interest rate into 72 then plug into calcula…

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 a…

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

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

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 a…

simple loan

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

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 val…

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

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

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

present value

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

simple loan eq

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

Present Value

Yield to Maturity

Simple Loan

Fixed Payment Loan

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

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 borr…

Present Value

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

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 a…

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

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

cash flows

streams of cash payments

present value (present discounted value)

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

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 a…

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

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

cash flows

streams of cash payments

present value (present discounted value)

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

Determinants of Asset Demand

An increase in wealth, expected return…

Risk Averse

Diversification

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

increase demand

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

dividing wealth among different assets to reduce risk

Determinants of Asset Demand

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

An increase in wealth, expected return…

increase demand