Bond Value = Present value of the coupons + Present value of the face amount
Bond value = C x (1-1/(1+r)t)/.08 + F/(1+r)t
For bond yields:
o =YIELD(settlement date, maturity date, annual coupon rate, bond
price (%of face value), face valu
Chapter 6 outline
6.1 Bonds and Bond valuation
When a corporation or government wishes to borrow money form the public on a long term
basis, it does so by issuing or selling debt securities that are called bonds.
Bond Features and Prices
- A bond is norma
Exam 3 study guide:
Capital budgeting: determining whether or not to buy a certain fixed assets.
- Also face issues in deciding whether or not to launch a new product or enter a new market.
Capital budgeting is probably the most important issue in corpora
=Chapter 8 outline: Net present value and other investment criteria
8.1 Net Present Value
- The financial manager must examine a potential investment in light of its likely effect
on the price of the firms shares. The most common procedure is
Chapter 4 outline
Valuing stocks and bonds
7.1 Common stock valuation
- 3 reasons a common stock is more difficult to value than a bond:
1. With common stock, not even the promised cash flows are known in advance.
2. the life of the investment is essentia
Time Value of Money:
- Time value of Money: a dollar in hand today is worth more than a dollar promised at
some point in the future.
o One thing it depends on is the rate you can earn by investing.
Future value and compounding:
- Future Valu
Chapter 9: Capital Investment Decisions
- Follows up on chapter 8 by delving more into capital budgeting.
- Has two main tasks:
o Last chapter, we saw that cash flow estimates are the critical input into a net
present value analysis, but not
Chapter 5 outline finance
5.1 Future and present values with multiple cash flows
Future value with multiple cash flows: (two different ways, get same answer.)
Compound the accumulated balance forward one year at a time
- Suppose you deposit $100 today in
Simple vs Compound
- If you invest $500 at 10%, whats the amount after two years in both simple and
o Simple: $500 x .1 = $50. Times two year is $100 total. So the simple interest
amount would be $600.
o Compound: $500 x (1.1)2 = $605.
Future Value with multiple cash flows
- FV = PV (1+r)t
- Go in opposite order. Year one t = 3, year two t = 2, year three t = 1 and year four t =
- Ex: number 2 on homework
Present value with multiple cash flows
- PV = FV (1+r)t
- Go in regular order.
I . How many of the following items are found on the balance sheet, rather than the income statement?
Income tax expense
Selling and administrative expenses
Plant and equipment
Calculate Jensen's Alpha with Excel
This spreadsheet calculates the alpha of a portfolio with respect to a market index
Chapter 13: Risk and Capital Budgeting
Risk and Capital Budgeting
If corporate managers are risk-averse, does this mean they will not take risks?
Risk-averse corporate managers are not unwilling to take risks
Chapter 21: International Financial Management
International Financial Management
What risks does a foreign affiliate of a multinational firm face in todays
In addition to the normal risks that a domes
Chapter 19: Convertibles, Warrants, and Derivatives
Convertibles, Warrants, and Derivatives
What are the basic advantages to the corporation of issuing convertible
The advantages to the corporation of a co
Chapter 16: Long-Term Debt and Lease Financing
Long-Term Debt and Lease Financing
Corporate debt has been expanding very dramatically in the last three decades.
What has been the impact on interest coverage, particula
Chapter 17: Common and Preferred Stock Financing
Common and Preferred Stock Financing
Why has corporate management become increasingly sensitive to the
desires of large institutional investors?
Corporate management ha
Chapter 15: Investment Banking: Public and Private Placement
Investment Banking: Public and Private Placement
In what way is an investment banker a risk taker?
The investment banker is a risk taker (underwriter) in th
Chapter 18: Dividend Policy and Retained Earnings
Dividend Policy and Retained Earnings
How does the marginal principle of retained earnings relate to the returns that a
stockholder may make in other investments?
Chapter 11: Cost of Capital
Chapter 11 Cost of Capital
11-1. Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)? Though an investment financed by low-cost
Chapter 12: The Capital Budgeting Decision
The Capital Budgeting Decision
What are the important administrative considerations in the capital budgeting
Important administrative considerations relate to: the s
Chapter 09: Time Value of Money
Chapter 9 Time Value of Money
9-1. How is the future value (Appendix A) related to the present value of a single sum (Appendix B)? The future value represents the expected worth of a single amount, wher
Chapter 14: Capital Markets
In addition to U.S. corporations, what government groups compete for funds in
the U.S. capital markets?
The federal government, government agencies, and state and local gove
Chapter 03: Financial Analysis
Chapter 3 Financial Analysis
3-1. If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons? Sho
Chapter 07: Current Asset Management
Chapter 7 Current Asset Management
7-1. In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit? Cash and
Chapter 10: Valuation and Rates of Return
Valuation and Rates of Return
How is valuation of any financial asset related to future cash flows?
The valuation of a financial asset is equal to the present value of future
Chapter 04: Financial Forecasting
Chapter 4 Financial Forecasting
4-1. What are the basic benefits and purposes of developing pro forma statements and a cash budget? The pro-forma financial statements and cash budget enable the firm t
Chapter 06: Working Capital and the Financing Decision
Chapter 6 Working Capital and the Financing Decision
6-1. Explain how rapidly expanding sales can drain the cash resources of a firm. Rapidly expanding sales will require a buildu
Chapter 05: Operating and Financial Leverage
Chapter 5 Operating and Financial Leverage
5-1. Discuss the various uses for break-even analysis. Such analysis allows the firm to determine at what level of operations it will break even (