Capital Budgeting
The capital budgeting approach that measures the sum of all the discounted cash flows
Net Present Value
This refers to the business's choice of how assets are financed
Capital Structure
This has the most importance on your credit score
Payment History
The payment you receive if you have an insurance claim
Indemnity
Measure that represents the risk of a specific investment
Variance or standard deviation
The measurement of how long until the initial cash investment is returned
Payback period or break-even period
The "cost of equity" in the WACC equation represents:
the required rate of return or return level promised to invesrtos
FICO scores range from:
300 to 850
What you pay to purchase insurance
premium
A measure of the relationship between two random variables
Covariance or correlation
Taxable Income =
Inflows - outflows - depreciation - loan interest
The discount rate used in capital budgeting problems is best understood as:
Opportunity Cost
This category has the 3rd largest effect on your credit score
Length of Credit History
This type of life insurance only provides a death benefit over a fixed time period
Term life
The range in which correlations values can fall within
-1 to +1
The opposite of synergies
Diversions or cannibalism
The standardized measure of relative risk that measures the amount of risk per unit of x
Coefficient of variation
The credit evaluation model that measures credit by specific levels or "Hurdles"
Credit Classification Model
The two main components of insurance pricing are:
The probability of a loss occurring and the potential size of a loss
The risk measure that focuses on downside risk or losses
Value at Risk
MIRR =
(FV inflows / PV outflows) ^ (1/N) - 1
The two main considerations we discussed in class when doing capital budgeting problems is
Feasibility and desirability
The 5 C's of credit are:
Capital
Capacity
Collateral
Character
Conditions
Name a factor that would affect your car insurance premium
age, driving record, type of care, place of residence, how much do you drive, gender
The expected return of a 2-asset portfolio =
Weight of 1 * return of 1 + weight of 2 * return of 2