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Lecture04_winter09

Lecture04_winter09 - VALUATION INTRINSIC VALUE OF AN ASSET...

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VALUATION
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INTRINSIC VALUE OF AN ASSET Is the PRESENT VALUE of all the FUTURE INCOME that the owner will RECEIVE FINANCIAL ASSETS : Stocks, Bonds, Bank Loans, Lease Obligations REAL ASSETS : Tangible (estate, machinery, factories), Intangible (technical expertise, trademarks, patents) 1 1 t t P t period in rate discount t Period in Income
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BONDS A fixed obligation debt security, issued by governments, governmental agencies, municipalities and corporations. A promissory note that entitles its holder to a series of a series of COUPON (interest) payments and the repayment of the FACE (or par) VALUE at MATURITY .
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ELEMENTS TO A BOND FACE/PAR VALUE : The amount of money borrowed. Usually $1,000 per bond. COUPON : Specified dollar amount to be paid periodically (usually every six months) COUPON RATE: Stated Annual Rate of the Interest of the Bond MATURITY : The date of the last payment (the last coupon and the face value)
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TYPES OF BONDS PURE DISCOUNT BONDS : It promises only the re-payment of the FACE VALUE at MATURITY .
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