Final Notes - Finance Fundamentals 1. Anything with...

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Unformatted text preview: Finance Fundamentals 1. Anything with productive capacity is called capitol 2. Goals of government To protect equality 3. Government policy tools a. Fiscal Policy policy dealing with taxes borrowing and budgeting b. Monetary Policy the policy that the government uses to control money supply 4. A Firm is a nexus of contracts or a collection of contacts 5. Why do firms exist a. I t is more cost efficient to deal with firm than with individual 6. What is a contract it's an agreement of action and list penalties if failed 7. Property rights and organizational forms a. Proprietor b. Partnership c. Corporation 8. The nationality of a firm is determined by where they employ the most people 9. What is Multination Multi-domestic firm 10. Money market is short term 11. Financial market is long term 12. The Stockholder Theory 13. Primary objective of the managers is to serve the stockholders 14. Managers Fiduciary Duties Managers must make decisions in the best interest of the stockholders 15. There are 3 dimensions that affect Maximization of stock price a. Magnitude - dollar amount of cash flow b. Timing- time of inflow and outflow c. Risk likely hood of occurring 16. TVM 1. Consols are perpetuities that started in London a. Railroads issued Consols before 2. Stated annual interest rate of SAIR or APR is not useful unless compounding period also given 3. Effective annual interest rate EAIR or EAR is the total interest paid or received with compounding already factored into the number Bonds 1. Bond is long term debt it usually has a face value or a par value usually $1000 a life/term and coupon rate or interest rate 2. a zero coupon bond pays $0 coupons just pays the face value at the end no tax on interest a. there are also discount bond, consol, and level coupon bond 3. Long bonds fluctuate more than short bonds and Consider two otherwise identical bonds. The long-maturity bond will have much more volatility with respect to changes in the discount rate 4. A coupon rate is a rate used to calculate coupon payments it is a % of the face value 5. R is the opportunity cost of market interest rate or RRR(required rate of return) 6. The low-coupon bond will have much more volatility with respect to changes in the discount rate 7. Price of bond a. Par Bonds When RR = Coupon Rate b. Discount Bonds when RR > Coupon Rate c. Premium Bonds When RR < Coupon Rate Stocks 1. 3 values of stocks Market Value-price to buy and sell stock on the market a. Book value the accounting value b. Liquidation Value the value to liquidate when a company is in bankruptcy 2. Whats the value of an asset Its the PV of all the benefits it provides 3. the benefits are the Capitol gains and the dividends they provide 4. High dividend stocks are called income stocks 5. High Capital Gain stocks are called Growth Stocks 6. Dividends are Capitol gain has an inverse relationship 7. Stocks sometimes dont give dividends because they have high chance of gain 8. RRR or cost of equity of capitol is the opportunity cost of the stock is r is discount rate 9. The stock the investor wants depends on a. Tax, b. Current income and c.c....
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas at Austin.

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Final Notes - Finance Fundamentals 1. Anything with...

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