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47 Cards in this Set
- Front
- Back
indenture |
a written agreement that contains the specific details related to a bond issue |
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if a standard deviation is high: |
more volatile/higher risk |
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cash + firm = |
debt +equity |
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if you have a beta> 1 |
a sock has more systematic risk and a HIGHER risk premium |
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book value is |
an assets value recorded on the balance sheet |
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BV = |
CAPEX - (depreciation x project life) |
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(E(Rm)-Rf) is also called |
market risk premium |
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if the growth on a dividend is greater than the rate of return: |
you have to calculate manually |
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real rate of return= |
(1 +nominal rate) / (1+inflation) - 1 |
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how do you calculate OCF? |
sales- VC- FC - DEP = EBIT - Tax + DEP |
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working capital management |
mix of current assets & liabilities which a company uses to run it's day to day business |
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three ways to improve agency problems are: |
1. threaten to fire any manager for poor performance 2. performance based pay 3. managerial stock ownership |
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capital structure |
mix of lONG TERM debt and equity that a business holds, in order to finance it's purchase of LT assets |
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latency |
time to execute a trade |
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capital budgeting |
the mix of LT investments that a firm should buy (what projects are they going to take on)
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with capital budgeting, what finance methods are adopted: |
NPV, payback, IRR |
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Call provision provides the bond issuer with: |
the option of repurchasing the bonds prior to maturity at a pre-specified price |
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zero coupon bond |
a bond that initially sells at a deep discount and pays no interest payments |
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interest rate risk premium |
compensates bond investors for the risk of changing interest rates that affect their bonds |
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inflation risk premium |
compensates bond investors for the expected price increase |
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default risk premium |
represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest or principal payments as expected |
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unsecured bond |
a bond for which no specific property has been pledged as security |
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The lowest rating a bond can receive from Moody's and still be classified as an investment quality-bond is: |
Baa |
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3 ratings that indicate bond is low-quality? |
1) BB |
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indexed bond |
the face value adjusts for inflation |
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convertible bonds |
bonds that can be converted into company shares at specified time periods. this allows bond holders to capitalise if the company is doing well |
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preferred stock |
must be paid to shareholders before any oter dividends are paid to common shareholders |
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fiduciary duty |
investment professionals will act in the best interest of their clients, and put their clients interests above their own |
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macro-prudential regulation |
reduces the potential risk of a market wide crash. REGULATION OF SYSTEMATIC RISK |
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micro-prudential regulation |
reduces the potential risk of a company crashing |
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front running |
buying stocks ahead of your clients to gain on impact of their order |
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systematic risk |
market risk- UNDIVERSABLE |
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unsystematic risk |
also known as unique risk- specific risk. you can decrease this by diversifying your portfolio |
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Required return of equity or RE can also be called |
cost of equity |
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Required return of debt or RD can also be called |
cost of debt |
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when an entity becomes bankrupt, you either |
reorganise or liquidate |
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operating leverage |
an analysis of fixed and variable costs |
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high operating leverage is when |
companies have high fixed costs but little variabe costs. this means that when FC are covered, the remaining revenue if profit |
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an example of low operating leverage is: |
walmart- they have a very high cost of inventory |
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payback = |
amount to still be paid back / CF in the following year + the years that have passed |
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you calculate R by: |
current price- intial price / intial price |
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an interest shield |
allows entities to save tax costs from the tax deductability from interest expenses |
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unique risk: |
company risk/ specific risk. can be decreased by diversifying portfolio |
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a bond with a lower coupon rate is: |
more sensitive to a change in interest rate |
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a bond with a shorter time to maturity has: |
less interest rate risk than a long-term bond |
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what is an example of high, low, and no risk |
stocks, bonds and treasury bills |
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a zero-coupon bond is calculated with a |
semi-annual periods |