Finance Test #2

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Author:
only1ssbrown
ID:
114324
Filename:
Finance Test #2
Updated:
2011-11-03 20:45:18
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Finance
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Finance Test #2
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  1. ANNUITY
    finite series of equal payments that occur at regular intervals
  2. ORDINARY ANNUITY
    the 1st payment occurs at the end of the period; ex. loans
  3. PERPETUITY
    infinite series of equal payments; ex. preferred stock

    • PV=
    • cash flow per period (C)
    • rate per period (r)
  4. EFFECTIVE ANNUAL RATE (EAR)
    the actual rate paid (or recieved); leave interest in bank so it becomes compounded once per year
  5. ANNUAL PERCENTAGE RATE (APR)
    quoted by law

    interest rate per period x the # of periods in a year
  6. DISCOUNT BOND
    YTM > coupon rate

    par value > bond price
  7. PREMIUM BOND
    YTM < coupon rate

    par value < bond price
  8. CURRENT YIELD
    • annual coupon (interest)
    • bond price
  9. BOND INDENTURE
    contract between the company & the bondholders that includes: the basic terms of the bonds, the total amount of bonds issued, a description of property used as security (if applicable), sinking fund provisions, call provisions, & details of protective covenants
  10. SINKING FUND
    an ccount managed by the bond trustee for early redemption; retires portion of debt;

    bonds with this = low coupon, low risk
  11. CALL PROVISION
    an agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity

    bonds with this = less desirable, high coupon, high risk
  12. FISHER EFFECT
    (1 + R) = (1 + r) (1 + h)
  13. APPROXIMATION
    R = r + h
  14. PROXY
    a grant of authority by a shareholder allowing another individual to vote his/her shares; each share = one vote
  15. DIVIDENDS
    payments to shareholders representing a return on the capital directly or indirectly contributed to the corporation; not required = firm can't go bankrupt because it didn't pay; not tax deductible = no tax advantage
  16. PREFERRED STOCK
    $100 par value; dividend must be paid before common stockholders get anything; pays fixed dividend; dividends can be deferred indefinitely; doesn't carry voting rights;

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