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;
47 Cards in this Set
- Front
- Back
|
indenture |
a written agreement that contains the specific details related to a bond issue |
|
|
if a standard deviation is high: |
more volatile/higher risk |
|
|
cash + firm = |
debt +equity |
|
|
if you have a beta> 1 |
a sock has more systematic risk and a HIGHER risk premium |
|
|
book value is |
an assets value recorded on the balance sheet |
|
|
BV = |
CAPEX - (depreciation x project life) |
|
|
(E(Rm)-Rf) is also called |
market risk premium |
|
|
if the growth on a dividend is greater than the rate of return: |
you have to calculate manually |
|
|
real rate of return= |
(1 +nominal rate) / (1+inflation) - 1 |
|
|
how do you calculate OCF? |
sales- VC- FC - DEP = EBIT - Tax + DEP |
|
|
working capital management |
mix of current assets & liabilities which a company uses to run it's day to day business |
|
|
three ways to improve agency problems are: |
1. threaten to fire any manager for poor performance 2. performance based pay 3. managerial stock ownership |
|
|
capital structure |
mix of lONG TERM debt and equity that a business holds, in order to finance it's purchase of LT assets |
|
|
latency |
time to execute a trade |
|
|
capital budgeting |
the mix of LT investments that a firm should buy (what projects are they going to take on)
|
|
|
with capital budgeting, what finance methods are adopted: |
NPV, payback, IRR |
|
|
Call provision provides the bond issuer with: |
the option of repurchasing the bonds prior to maturity at a pre-specified price |
|
|
zero coupon bond |
a bond that initially sells at a deep discount and pays no interest payments |
|
|
interest rate risk premium |
compensates bond investors for the risk of changing interest rates that affect their bonds |
|
|
inflation risk premium |
compensates bond investors for the expected price increase |
|
|
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 |
|
|
unsecured bond |
a bond for which no specific property has been pledged as security |
|
|
The lowest rating a bond can receive from Moody's and still be classified as an investment quality-bond is: |
Baa |
|
|
3 ratings that indicate bond is low-quality? |
1) BB |
|
|
indexed bond |
the face value adjusts for inflation |
|
|
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 |
|
|
preferred stock |
must be paid to shareholders before any oter dividends are paid to common shareholders |
|
|
fiduciary duty |
investment professionals will act in the best interest of their clients, and put their clients interests above their own |
|
|
macro-prudential regulation |
reduces the potential risk of a market wide crash. REGULATION OF SYSTEMATIC RISK |
|
|
micro-prudential regulation |
reduces the potential risk of a company crashing |
|
|
front running |
buying stocks ahead of your clients to gain on impact of their order |
|
|
systematic risk |
market risk- UNDIVERSABLE |
|
|
unsystematic risk |
also known as unique risk- specific risk. you can decrease this by diversifying your portfolio |
|
|
Required return of equity or RE can also be called |
cost of equity |
|
|
Required return of debt or RD can also be called |
cost of debt |
|
|
when an entity becomes bankrupt, you either |
reorganise or liquidate |
|
|
operating leverage |
an analysis of fixed and variable costs |
|
|
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 |
|
|
an example of low operating leverage is: |
walmart- they have a very high cost of inventory |
|
|
payback = |
amount to still be paid back / CF in the following year + the years that have passed |
|
|
you calculate R by: |
current price- intial price / intial price |
|
|
an interest shield |
allows entities to save tax costs from the tax deductability from interest expenses |
|
|
unique risk: |
company risk/ specific risk. can be decreased by diversifying portfolio |
|
|
a bond with a lower coupon rate is: |
more sensitive to a change in interest rate |
|
|
a bond with a shorter time to maturity has: |
less interest rate risk than a long-term bond |
|
|
what is an example of high, low, and no risk |
stocks, bonds and treasury bills |
|
|
a zero-coupon bond is calculated with a |
semi-annual periods |
