Term
|
Definition
| A promissory note issued by a corporation or government that is a promise to pay a pre-determined set of cash flows. |
|
|
Term
|
Definition
annual coupon payment expressed as a percentage of face value.
CR = $C/$F |
|
|
Term
| Bond value depends on what 4 things? |
|
Definition
1) Face Value (F)
2) Coupon (C)
3) Maturity (t)
4) Required Rate (r) |
|
|
Term
| What determines the requried rate? |
|
Definition
RISK!
High Risk = High Rate
Low Risk = Low Rate |
|
|
Term
| Price (Present Value) and Rate move in the (SAME/OPPOSITE) direction |
|
Definition
|
|
Term
| Risk and Price (Present Value) move in the (SAME/OPPOSITE) direction |
|
Definition
|
|
Term
| Rate and Risk move in the (SAME/OPPOSITE) direction. |
|
Definition
|
|
Term
If Coupon Rate > Coupon Yield, then...
$F _(<,>)_ $P |
|
Definition
|
|
Term
If Coupon Rate < Coupon Yield, then...
$F _(<,>)_ $P |
|
Definition
|
|
Term
| Current Yield = ___ / ___ |
|
Definition
|
|
Term
|
Definition
|
|
Term
| Market Price is determined by... |
|
Definition
|
|
Term
|
Definition
| the market's Required Rate of Return |
|
|
Term
Links between Coupon Rate and Yield-to-Maturity:
If Bond Price = Face Value, then YTM = CR
If Bond Price < Face Value, then YTM > CR
If Bond Price > Face Value, then YTM < CR |
|
Definition
| Price is to Face Value OPPOSITELY as YTM is to CR |
|
|
Term
| High Risk = ___ YTM, ___ Quanitity Demanded, ___ Price |
|
Definition
| High Risk = HIGH YTM, LOW Quanitity Demanded, LOW price |
|
|
Term
| LOW Risk = ___ YTM, ___ Quanitity Demanded, ___ Price |
|
Definition
| LOW Risk = LOW YTM, HIGH Quantity Demanded, HIGH Price |
|
|
Term
| Short term bonds ARE/ARE NOT very sensitive to changes in interest rates. |
|
Definition
|
|
Term
| When Duration is LOW, the majority of the payment is (Sooner/Later) |
|
Definition
|
|
Term
| When Duration is HIGH, the majority of the payment is (Sooner/Later) |
|
Definition
|
|
Term
| DEBT: Interest (IS/ISN'T) tax-deductable |
|
Definition
IS!
In debt, interest is considered a cost of doing business. |
|
|
Term
| EQUITY: Dividends (ARE/AREN'T) tax deductable |
|
Definition
AREN'T!
No liability if dividends are not paid. |
|
|
Term
| Dividen Yield = Current Yield |
|
Definition
Dt/P(t-1)
It is the dividend payment (D1) over price (P0), instead of coupon payment. Same difference, really. |
|
|
Term
|
Definition
percent change in price since you've owned it.
= (New Price - Old Price)/Old Price
= (P1-P0)/P0 |
|
|
Term
|
Definition
| Dividend Yield + Capital Gain Yield |
|
|
Term
| Constant Dividend growth: When there is a constant dividen expected at regular intervals forever. You use the _________ formula. |
|
Definition
|
|
Term
| Price increases as growht rate ________. |
|
Definition
|
|
Term
|
Definition
1) Dividends are larger
2) The dividend growth rate is large
3) The company's stock is less risky
4) The lower the interest rates |
|
|
