FIN 320 notes - Time value of money refers to the...

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Time value of money refers to the difference of dollars today and the difference of dollars in the future. Future Value refers to the amount of money an investment will grow over some period of time at some given interest rate. Compounding is interest on interest. Simple interest is interest not reinvested, so interest earned each period is on the original principal. Present Value is the current value of future cash flows discounted at the appropriate discount rate. Discount is the calculating the present value of some future amount. Discounted cash flow (DCF) valuation is calculating the present value of a future cash flow to determine its value today. Coupon is stated interest payment made on a bond. Face Value : the principal amount of a bond that is prepaid at the end of the term. Also, par value. Coupon rate : the annual coupon divided by the face value of a bond. Maturity : Date on which the principal amount of a bond is paid. Yield to maturity : the rate required in the market on a bond. Short-term debt (bonds) is called unfunded debt. Debt securities (long-term) are notes, debentures, or bonds- promises made by the issuing firm to pay principal when due and make timely interest payments on the unpaid balance. Two types: collateral and mortgage Indenture (or deed of trust): The written agreement between the corporation and the lender detailing the terms of the debt issue. Registered form : The form of the bond issue in which the registrar of the company records ownership of each bond; payment is made directly to the owner of the record. Bearer form : The form of the bond issue in which the bond is issued without record of the owner’s name; payment is made to whoever holds the bond. Debenture: An unsecured debt, usually with a maturity of 10 years or more. – they have a claim on property. –They may be subordinated. Note: An unsecured debt, usually with a maturity under 10 years. – They are either Senior or Junior depending on the seniority. Sinking fund : An account managed by the bond trustee for early bond redemption. – This is accomplished by using annual payments to retire a portion of the debt, the trustee buys some of the bonds on the market, or calling in a fraction of the outstanding bonds. Call Provision : An agreement giving the corporation the option to repurchase the bond at a specific price prior to maturity. Call premium
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FIN 320 notes - Time value of money refers to the...

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