Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
15 Cards in this Set
- Front
- Back
|
What do economists mean by real? What is the opposite of this? |
After inflation Nominal/Stated/Quoted |
|
|
What is a positive real rate of interest? What is a negative real rate of interest? |
Interest rate that is greater than inflation Interest rate that is less than inflation |
|
|
What is the difference between nominal risk-free rate and real risk-free rate? Which is represented by US Treasuries yield? |
The nominal risk-free rate is equal to the real risk-free rate plus inflation premium, r = r* + IP US Treasuries yield represents the nominal risk-free rate. |
|
|
Define and provide examples of: 1.Municipal bonds 2.Secured bonds 3.Unsecured bonds 4.Zero-coupon bonds 5.Callable bonds 6.Convertible bonds |
1.Bonds issued by states or one of its political subdivisions (county, city, school, etc) and pays tax-free interest 2.Bonds backed by collateral, such as a mortgage 3.Bonds not backed by collateral, i.e. debentures 4.Bonds that pay no periodic interest, instead they are issued at significant discount 5.Bonds that may be redeemed prior to maturity, at the issuer's option 6.Bonds that may be exchanged for the issuer's common stock, at the bondholder's option |
|
|
Are callable bonds usually called when interest rates rise or fall? Does the call feature favor the issuer or the bondholder? Does call protection protect the issuer or the bondholder? |
Fall Issuer Bondholder |
|
|
Define: 1.Corporate charter/Articles of incorporation 2.Authorized stock 3.Issued stock 4.Outstanding stock 5.Treasury stock 6.Pre-emptive right |
1.To form a corporation, a corporate charter or the articles of incorporation must be filed with a state 2.The maximum number of shares a corporation may issue, as specified by the corporate charter 3.The number of shares given to investors in exchange for their capital 4.Issued stock less treasury stock equals outstanding stock; shareholders are entitled to vote and receive dividends 5.Stock issued to investors and subseqently repurchased by the corporation, these shares are not eligible to vote or receive dividends 6.The right of shareholders to maintain proportional ownership in a corporation |
|
|
What is the difference between corp. inc. and co.? |
Corp. means corporation and inc. means incorporation and both indicate the business is a corporation. Co. means company which could indicate any business type. |
|
|
Who decides whether a corporation will pay a dividend or not? How are the books affected on declaration date, record date, and payable date? |
The board of directors Declaration date: The corporation accrues a liability - dividend payable and reduces retained earnings Record date: No effect Payable date: The corporation fulfills/removes its liability - dividend payable and reduces cash |
|
|
Define and provide examples of: 1.Outperform 2.Underperform 3.Benchmark |
1.An investment that performed better than what it's being compared to 2.The investment did not perform as well as what it's being compared to 3.A against which performance is measured |
|
|
How is market risk premium calculated given the expected market return and vice versa? What is the Capital Asset Pricing Model (CAPM) equation and how is it used? |
Market risk premium = Expected market return - nominal risk-free rate or Expected market return = Market risk premium + nominal risk-free rate Required return = nominal risk-free rate + [beta * market premium] It is used to determine the required return on stock that is more or less risky than the average |
|
|
How is the expected return of a stock portfolio calculated?
What does comparing the expected return to the required return tell us? |
Sum the probability * outcome for each stock in the portfolio
If expected is greater than the required - invest If the expected is less than the required - do not invest |
|
|
What is the formula to calculate compound growth? How is the compound growth formula affected by compounding that occurs more frequently than once per year? How is future value affected by the frequency of compounding? |
FV = PV * (1 + i)^n FV - Future value PV - Present value i = Annual interest rate n = Number of periods When compounding more freqently than once per year, convert the annual interest rate into the interest per period The more frequently interest is compounded the more interest is earned during the same period. |
|
|
What is the effective annual rate (EAR/EFF)? How is the EAR calculated? |
The annualized rate when interest is compounded more freqently than annually [(1 + i / number of times compounding occurs per year) ^ number of times compounding occurs per year] - 1 |
|
|
How is the present value of a lump-sum calculated and explained? Calculate present value when compounding occurs more freqently than annually What is the relationship between present value and interest? |
PV = FV / (1 + i)^n If you want FV in n years, and you earn i compounded annually, then you must invest PV. Divide i by the number of compounding periods per year PV allows financial professionals to estimate FV and from there calculate what i would be at the specified date n. |
|
|
What is the difference between an ordinary annuity and an annuity due? How is the FV of an annuity calculated? ? |
Ordinary annuities have the regularly-recurring payment at the end of the period, whereas annuities due have the regularly-recurring payment at the beginning of the period. FV = Payment * {[(1 + i)^n -1] / i} |
