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21 Cards in this Set
- Front
- Back
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What is future value?
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the value at some future time of an investment made today
Principal x (1+i) = FV |
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What is compounding?
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the process of earning interest on interest as savings accumulate over time
Principal x (1+i)^n = FVn |
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What is present value?
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the value today of funds that will be received in the future
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What is time value of money?
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the way that the value of a payment changes depending on when the payment is received
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What is discounting?
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the process of finding the present value of funds that will be received in the future
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What are debt instruments?
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methods of financing debt, including simple loans, discount bonds, coupon bonds, and fixed payment loans
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What is equity?
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a claim to part ownership of a firm, common stock issued by a corporation
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What is a simple loan?
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a debt instrument in which the borrower receives from the lender an amount called the principal and agrees to repay the lender the principal plus interest on a specific date when the loan matures
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What is a discount bond?
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a debt instrument in which the borrower repays the amount of the loan in a single payment at maturity but receives less than the face value of the bond initially.
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What is a coupon bond?
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a debt instrument that requires multiple payments of interest on a regular basis such as semiannually or annually and a payment of the face value at maturity
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What is a fixed payment loan?
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a debt instrument that requires the borrower to make regular periodic payments of principal and interest to the lender
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What is yield to maturity?
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the interest rate that makes the present value of the payments from an asset equal to the assets price today
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What is capital gain?
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if the price of an asset increases
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What is capital loss?
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if the price of an asses falls
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What is financial arbitrage?
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the process of buying and selling securities to profit from price changes over a brief period of time
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What is return?
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the total earnings from a security; for a bond, the coupon payment plus the change in the price of the bond
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What is rate of return?
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the return on a security as a percentage of the initial price; for a bond, the coupon payment plus the change in the price of a bond divided by the initial price
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What is interest rate risk?
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the risk that the price of a financial assets will fluctuate in response to changes in market interest rates
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What is nominal interest rate?
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an interest rate that is not adjusted for changes in purchasing power
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What is real interest rate?
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an interest rate that is adjusted for changes in purchasing power
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What is deflation?
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a sustained decline in the price level
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