The future value and the present value of a ______ is based on the number of periods involved and the going interest rate.

The annual rate of return is variously referred to as the discount rate, opportunity ______, or the cost of capital.

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ______ interest rate.

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ______ interest rate.

Compound interest is interest earned on previously earned interest. When the ______ earned on a deposit becomes part of the principal at the end of a specified time period.

An annuity is a series of consecutive payments of ______ amounts.

Perpetuity is an annuity with an ______ life.

The ______ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.

An ______ Premium is an adjustment to the real rate of return to compensate the investor for potential loss of purchasing power.

The ______-free rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.

The Risk ______ is an extra return demanded based on a firm’s business risk and financial risk.

Required Rate of Return (nominal rate of interest) is the return demanded by investors to compensate them for the amount of ______ involved.

Discount Rate – an interest rate applied to future cash ______ in order to determine their present value.

The yield to maturity is the annual rate of interest earned on a security purchased on a given date and held to ______.

The yield curve is a graphic depiction of the term structure of interest ______.

Which type of yield curve is upward sloping, where shorter maturities have lower yields?

Which type of yield curve has intermediate interest rates higher than both the short-term and long-term rates?

Which type of yield curve is downward sloping, where short-term rates are higher than intermediate or long-term rates?

Which theory holds that investor expectations of inflation rates in the future determine the shape of the yield curve?

Which theory states that long-term rates should be higher because long-term securities are less liquid and more price sensitive?

Which theory holds that there are separate forces of supply and demand for funds in the short- versus the long-term, with rates determined independently in each segment?

Bonds are long-term ______ instruments. Fill in the blank.

The value of a bond is the present value of the interest payments and ______ value. Fill in the blank.

The major factors affecting the cost, or interest rate, on a bond are its maturity, size of the offering, issuer’s risk and basic cost of ______. Fill in the blank.

The price of a bond with a fixed coupon rate and the market required return have a relationship that is best described as ______. Fill in the blank.

An ______ is the legal contract setting forth the terms and provisions of a corporate bond. Fill in the blank.

A ______ is an unsecured bond that only creditworthy firms can issue. Fill in the blank.

The ______ feature permits the issuer to repurchase bonds at a stated price prior to maturity. Fill in the blank.

The ______ feature allows the bondholder to change each bond into a stated number of shares of stock. Fill in the blank.

A floating rate bond gives purchasers ______ protection. Fill in the blank.

A mortgage bond is secured by real ______. Fill in the blank.

______ bonds are debt rated BB or lower by Standard & Poor's and are commonly used by rapidly growing firms to obtain growth capital. Fill in the blank.

Equity capital can be raised through retained earnings and the stock ______. Fill in the blank.

Holders of equity capital own the firm and expect to earn a return by receiving ______ and stock price appreciation. Fill in the blank.

Preferred stockholders are promised a fixed periodic dividend that must be ______ prior to paying any common stock dividends. Fill in the blank.

Preferred stock is valued as if it were a ______. Fill in the blank.

Typically Preferred Stock: is cumulative, is generally callable, and is ______.

Common stockholders are essentially owners of the firm and are sometimes referred to as ______ owners of the firm. Fill in the blank.

Treasury stock results from the repurchase of ______ stock. Fill in the blank.

Which of the following is a key difference between common stock and bonds?

Bonds have a stated _______ but stock does not.

Dividends are paid to _______; interest is paid to bondholders.

Management’s ability to achieve the goal of owner’s wealth maximization will largely depend on success in dealing with _______.

Uncertainty – does not know exactly what will happen in the _______.

Risk is the _______ of loss or the variability of returns associated with a given asset or it is how we characterize how much uncertainty exists.

Risk Averse – an _______ toward risk in which an increased return would be required for an increased risk.

Risk Taking/Seeking – an _______ toward risk in which a decreased return would be accepted for an increased risk.

Sensitivity analysis is a common approach of estimating the variability of returns involving forecasting the pessimistic, most likely, and optimistic _______ associated with the asset.

The probability of an event occurring is the percentage chance of a given _______.

The standard deviation measures the _______ around the expected value.

A collection of assets is called a _______.

Diversifiable risk – the portion of an asset’s risk attributable to firm-specific _______.

Nondiversifiable risk – the portion of an asset’s risk attributable to _______ factors that affect all firms.

War, inflation, and the condition of the _______ markets are all examples of Nondiversifiable risk.

Beta – a measure of Nondiversifiable risk and the beta of the market is _______.

What is correlation in the context of investments?

If both investments tend to vary in the same direction at the same time, they are said to be:

If one investment tends to vary in the opposite direction with respect to the other, they are:

If there is no relation between the changes in one investment with respect to changes in the other, the investments are:

What does the Capital Asset Pricing Model (CAPM) link?

What is the coefficient of variation formula as given in the worksheet?

Given: The market rate of return is 0.06 and the risk free rate of return is 0.03. What is the formula for the required rate of return (K) using the Capital Asset Pricing Model (CAPM)?