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payment or receipt of a series of equal payments over a period of time. |
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Payments at beginning of period |
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payments at end of period. (Assume ordinary unless stated otherwise) |
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An ordinary annuity whose payments or receipts continue forever such as preferred stock or perpetual bonds |
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Uneven patterns of cash flows, use combination of previous methods to solve. |
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Effective Annual Rate (EAR) |
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The actual interest rate that would be earned if the investment was exactly one year (use FVt) |
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Annual Percentage Rate (APR) |
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Interest rate charged per period multiplied by the number of periods. |
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Single payment, some time in future. |
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Principal and Interest is paid in equal installments. |
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Stated value of the bond at maturity |
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Stated interest rate placed on the bond |
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Number of years to reach full value |
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required rate of return in the market on a similar type bond |
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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 |
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When owner of bonds is recorded with the company and interest payments sent to owner. |
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Bond has coupons attached and whoever presents couponds receives interest payments |
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assets that can be sold to pay bondholders in event of default |
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real estate serves as security |
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indicates the debt to be paid first in liquidation. |
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1st claim on assets for repayment |
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2nd claim on assets for repayment. |
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last claim on assets for repayment.
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an account managed by the bond trustee used to repay loans early |
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Clause which allows issuer to repurchase or "call" all or part of the bonds at a certain price |
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requirements placed on the issuer to protect bondholders |
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the chance that interest rates will change and the value of your bonds decrease. |
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the chance the issuer does not pay all the principal and interest payments |
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the coupon payment is adjusted when interest rates change |
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buys and sells bonds for themselves |
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matches buyers with sellers |
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a network of dealers who stand ready to buy or sell bonds. |
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price a dealer pays for a bond |
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price a dealer sells a bond for |
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1. Coupon Rate/Maturity Date
2. Bid and Asked Price
3. Change in asked price
4. Yield to Maturity |
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Definition
1. Name of corporate issuer
2. Coupon rate
3. Maturity date
4. Yield to maturity
5. Volume traded
6. Asked Price |
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rates that have been adjusted for inflation |
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rates that have not been adjusted for inflation
= real rate of return + inflation premium |
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Dividend Growth Model (constant growth stocks) |
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equity without priority for dividends or in bankruptcy |
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stock with dividend priority over common stock, normally a fixed divident rate and sometimes without voting rights |
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Where a shareholder allows another person to vote his/her share |
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Where stock is originally sold to investors. A share of stock is sold once in the primary market |
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where previously issued stock is traded among investers |
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the process where we identify, analyze and select long term projects |
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the time period required for a project to generate cash flows to recover its initial cost |
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the PV of the projects net CF's or the difference between the projects cost and value |
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Internal Rate of Return (IRR) |
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the required return that results in a zero NPV when used as the discount rate |
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the ratio of PV of future net CF's to CF0.
Measures $ returned for every $ invested |
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A graph showing the relationship between a projects NPV and the discount rate used |
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the discount rate at which NPV profiles of two projects cross |
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