Podcast
Questions and Answers
What does the term 'Present Value' refer to?
What does the term 'Present Value' refer to?
- The money available at the present time. (correct)
- The final amount after all interest has been calculated.
- The interest over a period.
- The future worth of an investment.
Why is a Peso today worth more than a Peso tomorrow?
Why is a Peso today worth more than a Peso tomorrow?
- Because of its potential for growth through interest. (correct)
- Because it has the same value over time.
- Because inflation reduces the value of money.
- Because it can be exchanged for goods immediately.
Which variable represents the timeline for an investment?
Which variable represents the timeline for an investment?
- Interest Rate
- Number of Periods (correct)
- Future Value
- Payment Amount
What defines an ordinary annuity?
What defines an ordinary annuity?
What is the primary characteristic of a lump sum payment?
What is the primary characteristic of a lump sum payment?
Which term denotes the rate at which money grows over an investment's lifespan?
Which term denotes the rate at which money grows over an investment's lifespan?
What is the Future Value of an investment?
What is the Future Value of an investment?
In an investment scenario, what does 'PMT' stand for?
In an investment scenario, what does 'PMT' stand for?
What is the primary characteristic of zero coupon bonds?
What is the primary characteristic of zero coupon bonds?
What occurs if a company's bond rating is downgraded?
What occurs if a company's bond rating is downgraded?
What is meant by 'call premium' in bond terms?
What is meant by 'call premium' in bond terms?
What is a common feature of most corporate bonds?
What is a common feature of most corporate bonds?
What are original issue discount (OID) bonds primarily recognized for?
What are original issue discount (OID) bonds primarily recognized for?
How is the call premium structured over the years?
How is the call premium structured over the years?
What is referred to as 'call protection' in bond agreements?
What is referred to as 'call protection' in bond agreements?
What determines the original maturity of a bond?
What determines the original maturity of a bond?
What distinguishes an annuity due from other types of annuities?
What distinguishes an annuity due from other types of annuities?
How is present value calculated for an annuity due?
How is present value calculated for an annuity due?
What is a characteristic of a perpetuity?
What is a characteristic of a perpetuity?
If Jessica takes out a loan of $25,000 with a 7% annual interest rate for 5 years, what does her monthly payment represent?
If Jessica takes out a loan of $25,000 with a 7% annual interest rate for 5 years, what does her monthly payment represent?
How much will John's investment of $10,000 grow to in 10 years at an annual interest rate of 8%?
How much will John's investment of $10,000 grow to in 10 years at an annual interest rate of 8%?
What is contained in the formula for the present value of an annuity due?
What is contained in the formula for the present value of an annuity due?
In the context of financial management, what is the significance of the time value of money?
In the context of financial management, what is the significance of the time value of money?
What is the key difference between the future value and present value of an investment?
What is the key difference between the future value and present value of an investment?
What does the cash flow from a standard coupon-bearing bond primarily include?
What does the cash flow from a standard coupon-bearing bond primarily include?
If a bond is selling at a discount, what can be inferred about the relationship between its coupon rate and the market interest rate?
If a bond is selling at a discount, what can be inferred about the relationship between its coupon rate and the market interest rate?
What will happen to the price of a fixed-rate bond if the market interest rate decreases?
What will happen to the price of a fixed-rate bond if the market interest rate decreases?
In the bond price formula, which component contributes the present value of cash flows received during the bond's lifetime?
In the bond price formula, which component contributes the present value of cash flows received during the bond's lifetime?
Given a coupon rate of 10% and a market interest rate of 15%, what will be the bond's value if it is sold at a discount?
Given a coupon rate of 10% and a market interest rate of 15%, what will be the bond's value if it is sold at a discount?
What term describes a bond that sells for more than its par value?
What term describes a bond that sells for more than its par value?
Which of the following is NOT a component of the bond price formula?
Which of the following is NOT a component of the bond price formula?
In the case of a bond selling at its par value, what is true about the coupon rate and the market interest rate?
In the case of a bond selling at its par value, what is true about the coupon rate and the market interest rate?
What happens to the price of a bond when the market interest rate increases?
What happens to the price of a bond when the market interest rate increases?
If a bond's coupon interest is fixed, what component of the bond may vary over time?
If a bond's coupon interest is fixed, what component of the bond may vary over time?
How is the Yield to Maturity (YTM) best described?
How is the Yield to Maturity (YTM) best described?
If you have $1,000 to invest when current bonds are paying $50 interest annually, what would likely happen to bonds that yield $100 annually?
If you have $1,000 to invest when current bonds are paying $50 interest annually, what would likely happen to bonds that yield $100 annually?
What does a semiannual coupon payment structure entail compared to an annual structure?
What does a semiannual coupon payment structure entail compared to an annual structure?
Which of the following is NOT one of the three yield calculations for bonds?
Which of the following is NOT one of the three yield calculations for bonds?
What is the relationship between interest rate changes and bond prices?
What is the relationship between interest rate changes and bond prices?
What does the coupon payment represent in a bond's structure?
What does the coupon payment represent in a bond's structure?
What is the primary purpose of the Price to Sales Ratio?
What is the primary purpose of the Price to Sales Ratio?
What is considered when determining if shares are underpriced or overpriced?
What is considered when determining if shares are underpriced or overpriced?
Which value measures the accounting value of a company per share?
Which value measures the accounting value of a company per share?
Which factor is NOT a part of the Capital Budgeting Process?
Which factor is NOT a part of the Capital Budgeting Process?
What does Liquidation Value indicate?
What does Liquidation Value indicate?
When should investors sell their shares based on market value and intrinsic value criteria?
When should investors sell their shares based on market value and intrinsic value criteria?
What is the main characteristic of Rational Investors in an efficient market?
What is the main characteristic of Rational Investors in an efficient market?
What is the definition of Capital Budgeting?
What is the definition of Capital Budgeting?
Flashcards
Time Value of Money
Time Value of Money
The value of money available today is greater than the same amount of money available in the future due to the potential to earn interest.
Present Value
Present Value
The initial amount of money you have at the start of an investment, also known as the principal amount.
Future Value
Future Value
The amount of money you will have at a specific future date after accounting for interest earned.
Number of Periods (N or T)
Number of Periods (N or T)
Signup and view all the flashcards
Interest Rate (I or R)
Interest Rate (I or R)
Signup and view all the flashcards
Lump Sum
Lump Sum
Signup and view all the flashcards
Ordinary Annuity
Ordinary Annuity
Signup and view all the flashcards
Present Value of a Lump Sum
Present Value of a Lump Sum
Signup and view all the flashcards
Annuity Due
Annuity Due
Signup and view all the flashcards
Present Value Annuity Due
Present Value Annuity Due
Signup and view all the flashcards
Future Value Annuity Due
Future Value Annuity Due
Signup and view all the flashcards
Perpetuity
Perpetuity
Signup and view all the flashcards
Present Value Perpetuity
Present Value Perpetuity
Signup and view all the flashcards
Present Value (PV)
Present Value (PV)
Signup and view all the flashcards
Future Value (FV)
Future Value (FV)
Signup and view all the flashcards
Principal
Principal
Signup and view all the flashcards
Zero Coupon Bonds
Zero Coupon Bonds
Signup and view all the flashcards
Call Provision
Call Provision
Signup and view all the flashcards
Call Price
Call Price
Signup and view all the flashcards
Call Premium
Call Premium
Signup and view all the flashcards
Original Issue Discount (OID) Bond
Original Issue Discount (OID) Bond
Signup and view all the flashcards
Step-Up Provision
Step-Up Provision
Signup and view all the flashcards
Original Maturity
Original Maturity
Signup and view all the flashcards
Time to Maturity
Time to Maturity
Signup and view all the flashcards
Yield to Maturity (YTM)
Yield to Maturity (YTM)
Signup and view all the flashcards
Why does bond price fall with rising interest rates?
Why does bond price fall with rising interest rates?
Signup and view all the flashcards
Why does bond price rise with falling interest rates?
Why does bond price rise with falling interest rates?
Signup and view all the flashcards
Coupon Rate
Coupon Rate
Signup and view all the flashcards
Maturity Date
Maturity Date
Signup and view all the flashcards
Quoted Coupon Rate
Quoted Coupon Rate
Signup and view all the flashcards
Face Value
Face Value
Signup and view all the flashcards
Current Yield
Current Yield
Signup and view all the flashcards
Bond's Required Rate of Return (rd)
Bond's Required Rate of Return (rd)
Signup and view all the flashcards
Maturity Value (M)
Maturity Value (M)
Signup and view all the flashcards
Bond's Market Price
Bond's Market Price
Signup and view all the flashcards
Discount Bond
Discount Bond
Signup and view all the flashcards
Premium Bond
Premium Bond
Signup and view all the flashcards
Inverse Relationship between Bond Prices and Interest Rates
Inverse Relationship between Bond Prices and Interest Rates
Signup and view all the flashcards
Bond Valuation
Bond Valuation
Signup and view all the flashcards
Price-Earnings Ratio (P/E Ratio)
Price-Earnings Ratio (P/E Ratio)
Signup and view all the flashcards
Price-to-Sales Ratio (P/S Ratio)
Price-to-Sales Ratio (P/S Ratio)
Signup and view all the flashcards
Book Value
Book Value
Signup and view all the flashcards
Issue Price
Issue Price
Signup and view all the flashcards
Liquidation Value
Liquidation Value
Signup and view all the flashcards
Market Value
Market Value
Signup and view all the flashcards
Real Value/Intrinsic Value
Real Value/Intrinsic Value
Signup and view all the flashcards
Study Notes
Time Value of Money
- The concept that money now is worth more than the same amount in the future due to its potential earning capacity.
Variables
- Present Value (PV): The current starting amount, initial investment.
- Future Value (FV): The ending amount at a future time.
- Number of Periods (N or T): The timeline of the investment, can be measured in years, quarters, months, or days.
- Interest Rate (I or R): The growth rate of the investment over its lifetime.
- Payment Amount (PMT): A series of equal, evenly spaced cash flows (or uneven).
Types of Time Value of Money
- Lump Sum: A single payment made at a particular time, no cash flow between PV and FV.
- Present Value Lump Sum: Payment at the beginning of the timeline.
- Future Value Lump Sum: Payment at the end of the timeline.
Examples
- Future Value with Annual Rate: Juan saves Php 5,000 annually for 3 years at 10% interest.
- Future Value with Compounding Rate: Juan saves Php 5,000 annually for 3 years at 10% interest compounded quarterly.
- Present Value with Annual Rate: Juan plans to have Php 6,655 for his trip in 3 years with 10% interest. How much needs to be saved today
- Present Value with Compounding Rate: Juan plans to have Php 6,655 for his trip in 3 years with 10% interest compounded quarterly. How much needs to be saved today
Ordinary Annuity
- A series of equal payments made at the end of consecutive periods over a fixed length of time.
Present Value Ordinary Annuity
- Formula to calculate the present value of an ordinary annuity.
Future Value Ordinary Annuity
- Formula to calculate the future value of an ordinary annuity.
Annuity Due
- A series of equal and consecutive payments that starts at the beginning of each time period.
Present Value Annuity Due
- Formula to calculate the present value of an annuity due.
Future Value Annuity Due
- Formula to calculate the future value of an annuity due.
Perpetuity
- A series of equal, infinite cash flows occurring at the end of each period, with no end point.
Present Value Perpetuity
- Formula to calculate the present value of a perpetuity.
Time Value of Money Problems
- Examples of applying time value of money concepts to solve real-world problems.
Lump Sum Present Value
- Calculation of present value of a future lump sum.
Annuity Due Present Value
- Calculation of present value of future annuity due payments.
Lump Sum Future Value
- Calculation of future value of a present lump sum.
Bond Valuation
- Introduction to bonds and their characteristics. Details of major types of bonds (treasury, corporate, municipal, foreign).
- Key characteristics of bonds (par value, coupon interest rate, maturity date).
- Provisions to call or redeem bonds (additional sum that the company pays).
- Other provisions and features, including convertible bonds, warrants, income bonds, and indexed bonds.
Bond Pricing
- How interest rate changes affect bond prices.
- Formulas for calculating bond price (present value calculations needed)
Yield to Maturity
- The rate of return expected on a bond if it is held until maturity. -Formula
Yield to Call
- The rate of return expected if the bond is called before maturity. -Formula
Stock Valuation
- Methods for valuing common stock (book value, liquidation value, discounted cash flow).
- Relative valuation technique (price-earnings ratio, price-to-sales ratio).
Capital Budgeting
- Types of projects (independent, mutually exclusive).
- Capital budgeting criteria (payback period, average rate of return, net present value, profitability index, internal rate of return)
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge on key financial concepts including Present Value, Future Value, and characteristics of different types of bonds and annuities. This quiz covers essential terms and definitions that every finance student should understand. Dive into the world of investment and learn about the dynamics affecting the value of money over time.
