Future Value (FV)

Payment (PMT)

Rate of Return (I or Rate)

Number of Periods (N or NPER)

you can move a dollar to the future

you can value a dollar from the future

Present Value

Future Value

Cash Inflows

Cash Outflows

a stream of unequal periodic cash flows

a level of periodic stream of cash flow

a lump sum amount either held currently or expected at some future date

is the amount of money on which interest is paid

interest that is earned on a given deposit and has become part of the principal at the end of a specified period

is the value at a given future date of an amount placed on deposit today and earning interest at a specified rate. found by applying compound interest over a specific period of time

=RATE

=NPER

=PMT

=PV

=FV

future value goes up at the rate of return goes up

present value goes up at the rate of return down

a stream of equal periodic cash flows over a specified time period. these cash flows can be inflows of return earned on investments or outflows of funds invested to earn future returns

an annuity with an infinite life providing continual annual cash flow

is an annuity for which the cash flows occurs at the end of each period

is an annuity for which the cash flows occurs at the beginning of each period

effective interest rate is greater than the nominal annual interest rate

compounding more frequently than once a year results in a higher effective interest rate

What the equation for a perpetuity?

doubles

triples

is the contractual annual rate of interest change by a lender or promised by a borrower

is the annum rate of interest actually paid or earned

issued by companies, federal government, state and local governments, used for finance project/general financing, finance deficit spending, finance schools, roads, prisons etc

fixed promise to pay

inters rate fundamentals

rising trend in prices of most goods and services determined through the consumer priced index

which leads investors to expect a higher return on there investment

which refers to the general tendency of investors to prefer short term securities

dollars you get back to buy less stuff you need to get more dollars back

if there is a chance you may not get your money back, you need more dollar sin return to hedge your fund

if you have tied up your money for more tie you need more dollars in return to compensate for having your money tied up longer

the rate that creates equilibrium between the supply of saving and the demand for investment funds in a perfect world without inflation where suppose and demanders of funds have no liquify preferences and there is no risk

the relationship between the maturity and rate of return for bonds with similar levels of risk

graphic depiction of the term structure of interest rates

the compound annual rate of rerun earned on a debt security pouched on a given day and held to maturity

people expect rates to decline in the future because they expect inflation to decline

an expectation of moderating inflation offset the the requirement for higher rate to compensate for tying up cash

no change is expedited in inflation

the actual rate of interest charged by the suppler of funds and paid by the demander

reflects in an inflationary expectation same for all companies and is a proxy and don't expect the US government to default

reflects issuer and issue characters such as default risks and contractual provisions (unique to the company)

risk free rate is the real rate of interest plus the expected inflation premium

the more inflation expected the higher the inflation premium and the normal interest rate

risk premium varies with the specific issuer and issue characteristics

is a long term debt instrument indications that a corporation has borrowed a certain amount of money and praise to repay it in the future under clearly defined terms

is the percentage of a bonds par value that will be paid annually typically in two equal semiannual payments as interest

is the amount borrowed by the company and the amount owed to the bondholder on the maturity date

time at which a bond become due and principal must be paid

PAR VALUE

Coupon Rate and (Coupon Rate*1000)/2

Maturity Rate

Yield to Maturity

1000

YTM*2

YTM/2

benefits the bondholder

benefits the issuer

what are parts of the call feature

is the stated price at which a bond's call price exceeds its par value

is the amount by which a bond's call price its par value

if the feature benefits the holder

if the feature benefits the issue

if the feature benefits the issuer

if the feature benefits the holder

bond trading and price data are not readily available to individuals to individuals due to most corporate bonds are purchased and held by institutional investors rather than invidious investors

YTM<COUPON RATE

YTM=COUPON RATE

YTM>COUPON RATE

bonds are long term-debt instrument used by business and government to raise large sum of money typically roam a diverse group of leaders

most bonds pay interest semiannually at a stated coupon interest rate and have an initial maturity of 10-30 years and have a par value of $1000 that must be repaid at maturity

The Yield of Maturity (YTM) is the rate of return that investors earn if they buy a bond at a specific price and hold it until maturity

The Yield of Maturity (YTM) is the rate of return that investors earn if they buy a bond at a specific price and hold it until maturity

assumes that the issuer makes all scheduled interest and principal payments as promoted

YTM assumes the issuer makes all scheduled interest and principal payments as promised

the yield of maturity on a bond with a current price equals its par value and will always equal the coupon interest rate

when the bond values differs from the par the yield maturity will differ from the coupon interest rate

what are the 3 sanity check?

the value of the bond in the marketplace is rarely equal to its par value

the required return is likely to differ from the coupon interest rate because

increases in the basic rate long term funds _____ required return

Decreases in the basic rate long term funds _____ required return

the chance that interest will change and thereby change the required return and bond value

which result is decreasing bond values are the greatest of concern

the shorter the amount of time until a bond's maturity the less responsive is its market to a given change in required return

bonds with longer maturity leads to a small change in interest rate and a substantial change in the bond value

bonds with shorter maturity will not be as sensitive to interest rate changes

low coupon bonds will have much more validity with respect to changes in the discount rate

low coupon bonds are proportionally more dependent on the face account to are received at maturity (steeper slope) low coupon and longer amount are the more sensitive the bond changes