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Unit 2 CH 6-9
UWO BUS 331
57
Finance
Undergraduate 3
04/09/2012

Additional Finance Flashcards

 


 

Cards

Term
Annuity
Definition
payment or receipt of a series of equal payments over a period of time.
Term
Annuity Due
Definition
Payments at beginning of period
Term
Ordinary Annuity
Definition
payments at end of period. (Assume ordinary unless stated otherwise)
Term
FVA
Definition
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Term
PVA
Definition
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Term
Perpetuity
Definition
An ordinary annuity whose payments or receipts continue forever such as preferred stock or perpetual bonds
Term
Mixed Cash Flows
Definition
Uneven patterns of cash flows, use combination of previous methods to solve.
Term
PVA
Definition
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Term
FVt
Definition
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Term
Effective Annual Rate (EAR)
Definition
The actual interest rate that would be earned if the investment was exactly one year (use FVt)
Term
Annual Percentage Rate (APR)
Definition
Interest rate charged per period multiplied by the number of periods.
Term
Pure Discount Loan
Definition
Single payment, some time in future.
Term
Amortized Loans
Definition
Principal and Interest is paid in equal installments.
Term
Bond
Definition
Promise to pay (IOU)
Term
Face/Par value
Definition
Stated value of the bond at maturity
Term
Coupon Rate
Definition
Stated interest rate placed on the bond
Term
Coupon interest payment
Definition
Coupon Rate x Face value
Term
Maturity
Definition
Number of years to reach full value
Term
Yield to Maturity (YTM)
Definition
required rate of return in the market on a similar type bond
Term
Indenture
Definition

Written contract between bond issuer and bond holder.  Includes:

1.  Terms of the bond

2.  Total amount of bonds issued

3.  Security for bonds

4.  Repayment arrangements

5.  Call provisions

6.  Protective covenants

Term
Registered form
Definition
When owner of bonds is recorded with the company and interest payments sent to owner.
Term
Bearer form (outlawed)
Definition
Bond has coupons attached and whoever presents couponds receives interest payments
Term
Security/Collateral
Definition
assets that can be sold to pay bondholders in event of default
Term
Mortgage securities
Definition
real estate serves as security
Term
Debentures
Definition
Unsecured/no collateral
Term
Seniority
Definition
indicates the debt to be paid first in liquidation.
Term
Senior Debt
Definition
1st claim on assets for repayment
Term
Junior Debt
Definition
2nd claim on assets for repayment.
Term
subordinated debt
Definition

last claim on assets for repayment.

 

Term
Sinking Fund
Definition
an account managed by the bond trustee used to repay loans early
Term
Call Provisions
Definition
Clause which allows issuer to repurchase or "call" all or part of the bonds at a certain price
Term
Protective Covenants
Definition
requirements placed on the issuer to protect bondholders
Term
Interest Rate Risk
Definition
the chance that interest rates will change and the value of your bonds decrease.
Term
Credit/Default risk
Definition
the chance the issuer does not pay all the principal and interest payments
Term
Floating Rate bonds
Definition
the coupon payment is adjusted when interest rates change
Term
Dealer
Definition
buys and sells bonds for themselves
Term
Broker
Definition
matches buyers with sellers
Term
OTC market
Definition
a network of dealers who stand ready to buy or sell bonds.
Term
Bid Price
Definition
price a dealer pays for a bond
Term
Asked Price
Definition
price a dealer sells a bond for
Term
Treasury notes/bonds
Definition

1.  Coupon Rate/Maturity Date

2.  Bid and Asked Price

3. Change in asked price

4.  Yield to Maturity

Term
Corporate Bonds
Definition

1.  Name of corporate issuer

2.  Coupon rate

3.  Maturity date

4.  Yield to maturity

5.  Volume traded

6.  Asked Price

Term
Real Rates
Definition
rates that have been adjusted for inflation
Term
Nominal Rates
Definition

rates that have not been adjusted for inflation

 

= real rate of return + inflation premium

Term
Dividend Growth Model (constant growth stocks)
Definition
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Term
Common Stock
Definition
equity without priority for dividends or in bankruptcy
Term
Preferred Stock
Definition
stock with dividend priority over common stock, normally a fixed divident rate and sometimes without voting rights
Term
Proxy Vote
Definition
Where a shareholder allows another person to vote his/her share
Term
Primary Market
Definition
Where stock is originally sold to investors.  A share of stock is sold once in the primary market
Term
Secondary Market
Definition
where previously issued stock is traded among investers
Term
Capital Budgeting (CB)
Definition
the process where we identify, analyze and select long term projects
Term
Payback Rule
Definition
the time period required for a project to generate cash flows to recover its initial cost
Term
Net Present Value (NPV)
Definition
the PV of the projects net CF's or the difference between the projects cost and value
Term
Internal Rate of Return (IRR)
Definition
the required return that results in a zero NPV when used as the discount rate
Term
Profibility Index (PI)
Definition

the ratio of PV of future net CF's to CF0.

Measures $ returned for every $ invested

Term
NPV Profile
Definition
A graph showing the relationship between a projects NPV and the discount rate used
Term
Crossover Point
Definition
the discount rate at which NPV profiles of two projects cross
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