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20 Cards in this Set

  • Front
  • Back
a long term debt instrument
interest (current) yield
the annual dollar coupon interest paid on a bond divided by the bond's current market price; it represents the current income return on the bond.
Capital Gains Yield
the percentage growth (positive or negative) in the value of an investment. It is compounded by dividing the change in the dollar vlaue of an investment over some period by the investment's value at the beginning of the period.
Discount Bond
a bond that sells below its par value. This occurs whenever the going rate of interest rises above the coupon rate.
Premium Bond
a bond that sells above its par value. this occurs whenever the going rate of interest falls below the coupn rate.
Yield to Maturity (YTM)
the average rate of return earned on a bond if it is held to maturity.
Interest Rate Price Risk
The risk of changes in bond prices to which investors are exposed due to changing interest rates.
Interest Reinvestment Rate Risk
The risk that income from a bond portfolio will vary because cash flows must be reinvested at current market rates.
Market Price
the price at which the stock sells in the market.
Intrinsic Value, Po
The value of an asset that, in the mind of a particular investor, is justified by the facts, Po may be different from the asset's current price, its book value, or both.
Growth Rate, g
the expected rate of change in dividends per share.
Required Rate of Return, Ks
the minimum rate of return on a cammon stock that stockholders consider acceptable.
Dividend Yield
The expected dividend divided by the current price of a share of stock.
Capital Gains Yield
The change in price (capital gain) during a given year divided by the price at the beginning of the year.
Expected Rate of Return, K^s
the rate of return on a common stock that an individual stockholder expects to receive. It is equal to the expected dividend yield plus the expected capital gains yield.
Actual (realized) rate of return, Ks
the rate of return on a common stock actually received by stockholders. Ks may be greater than or less than K^s and/or Ks.
Zero Growth Stock
A common stock whose future dividends are not expected to grow at all; that is, g=0, and D^1=D^2=...=D^
Normal (constant) growth
growth that is expected to continue into the forseeable future at about the same rate as that of the economy as a whole; g=a constant.
Constant growth model
also called the Gordon model, it is used to find the value of a stock that is expected to experience constant growth.
Nonconstant Growth
the part of the life cycle of a firm in which its growth either is much faster or is much slower than that of the economy as a whole.