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Financial Markets
Time Value of Money
Capital Budgeting
Bonds
Stocks
100
Financial Market
What is a market where securities are issued and traded.
100
Present Value
What is the value today of a future cash flow.
100
Net Present Value
What is the present value of cash flows minus investment.
100
Face Value
What is Payment at the Maturity of the bond. Also called principal or par value.
100
Common Stock
What is ownerships shares in a publicly held corporation.
200
Financial Institution
What is a bank, insurance company, or similar financial intermediary.
200
Perpetuity
What is a stream of level cash payments that never ends.
200
Payback period
What is the time until cash flows recover the initial investment in the project.
200
Coupon rate
What is the annual interest payment as a percentage of the face value.
200
Risk Premium
What is the expected return in excess of risk-free return as compensation for risk.
300
Liquidity
What is the ability to sell an asset, on short notice, at close to market value.
300
Annuity Due
What is a level stream of cash flows starting immediately.
300
Internal Rate of Return (IRR)
What is a discount rate at which project NPV=0
300
Default Risk
What is the risk that a bond issuer may default on its bonds.
300
Diversification
What is the strategy designed to reduce risk by spreading the portfolio across many investments.
400
Mutual Fund
What is an investment company that pools the savings of many investors and invests in a portfolio of securities.
400
Annuity Factor
What is the present value of a $1 annuity.
400
Weighted Average Cost of Capital (WACC)
What is the expected rate of return on a portfolio of all the firm's securities, adjusted for tax savings due to interest payments.
400
Yield to maturity
What is the interest rate for which the present value of the bond's payments equals the price.
400
Dividend Discount Model
What is the discounted cash-flow model which states that today's stock price equals the present value of all expected future dividends.
500
Cost of capital
What is the minimum acceptable rate of return on capital investment.
500
Effective Annual Rate
What is the interest rate that is annualized using compound interest.
500
Modified Accelerated Cost Recovery System (MACRS)
What is a depreciation method that allows higher tax deductions in early years and lower deductions later.
500
Interest Rate Risk
What is the risk in bond prices due to fluctuations in interest rates.
500
Specific Risk
What are risk factors affecting only a specific firm. Also called diversifiable risk.