corporate finance exam 1 study sheet-1

corporate finance exam 1 study sheet-1 - Simple Interest:...

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Simple Interest: Interest is earned only on principal. Compound Interest: Interest is earned on interest of original principal Future Value: Value is the amount a sum will grow to in a certain number of years when compounded at a specific rate. Present Value: Present value reflects the current value of a future payment or receipt. Annuity: An annuity is a series of equal dollar payments for a specified number of years. Ordinary annuity payments: payments occur at the end of each period. Future Value of an Annuity: the future value of an annuity at the end of the nth year Present Value of an Annuity: the annuity payment deposited or received at the end of each year Examples: Pensions, insurance obligations and interest owned on bonds Annuities Due: Annuities due are ordinary annuities in which all payments have been shifted forward by one time period. Thus with annuity due, each annuity payment occurs at the beginning of the period rather than at the end of the period Amortized Loans: The periodic payment is fixed. However, different amounts of each payment are applied towards the principal and interest. With each payment, you owe less towards principal. As a result, amount that goes toward interest declines with every payment Perpetuity: an annuity that continues forever. Debentures: unsecured long-term debt. For issuing firm, debentures provide the benefit of not tying up property as collateral. For bondholders, debentures are more risky than secured bonds and provide a higher yield than secured bonds. Subordinated Debentures: There is a hierarchy of payout in case of insolvency. The claims of subordinated debentures are honored only after the claims of secured debt and unsubordinated debentures have been satisfied. Mortgage Bonds: secured by a lien on real property. value of the real property is greater than that of the bonds issued Eurobonds: Securities (bonds) issued in a country different from the one in whose currency the bond is denominated.
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Zero and Very Low Coupon Bonds: Junk Bonds (High-Yield Bonds): with ratings of BB or below by Moody’s and Standard & Poor’s. they pay high interest rate, 3-5% more than AAA rated bonds.
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This note was uploaded on 10/20/2011 for the course BUSINESS 70.2 taught by Professor Lin during the Fall '11 term at CUNY Brooklyn.

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corporate finance exam 1 study sheet-1 - Simple Interest:...

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