BA 323 SDSU EXAM 2 | ALL QUESTIONS AND CORRECT ANSWERS (DETAI
ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED ANSWERS
Adjusting the value of cash flows based
time value of money
on when the cash flows are received.
the amount of money in the future that an
amount of money today will yield, given Future Value
prevailing interest rates
The value today of a future cash flow or
Present Value
series of cash flows
The arithmetic process of determining
the final value of a cash flow or series
Compounding
of cash flows when compound interest is
applied
FVn = PV(1+ I)^n
N: Time / Number of years, I: Interest rate
Know how to solve for the future value,
per year • Aside: use annual compound-
present value, the interest rate, or time.
ing §PV, FV: • Amount of Money Starting
With (PV) or Ending With (FV)
the sum of all deposits plus all interest
paid.
Value of an annuity
KEY POINT: • To solve, we use PMT and
set either Future value or present value
to zero
Understand how different compounding
Daily! Interest on interest! periods impact cash flows (which com-
pounding period would you prefer?)
A long-term debt instrument in which a
borrower agrees to make payments of
bond
principal and interest, on specific dates,
to the holders of the bond.
Par value, coupon interest rate, maturity
What are the five key features of a bond?
date, issue date, and yield to maturity.
the amount that an investor pays to pur-
chase a bond and that will be repaid to
1/9
, BA 323 SDSU EXAM 2 | ALL QUESTIONS AND CORRECT ANSWERS (DETAI
ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED ANSWERS
the investor at maturity.
par value
Par value = Future value
the percentage of a bond's par value
that will be paid annually, typically in two
equal semiannual payments, as interest.
coupon interest rate
(stated interest rate paid by the issuer.
Multiply by par value to get dollar pay-
ment of interest.)
years until the bond must be repaid. Mature Date
when the bond was issued issue date
the rate of return a bondholder will re-
ceive if the bond is held to maturity. yield to maturity
"promised yield".
a provision in a bond contract that gives
the issuer the right to redeem the bonds
under specified terms prior to the normal
maturity date. call provision
*Companies like these incase interest
rates go down! Investors don't!
Penalty paid by the corporation is a bond
is called (amount in excess of par-value).
call premium
Bond investors require higher yields
Typically requires 5 to 10 years to call
When does the value of a bond equal its
At maturity!
par value?
a bond that sells above its par value; oc-
curs whenever the going rate of interest premium bond
is below the coupon rate
A bond that sells below its par value; oc-
curs whenever the going rate of interest discount bond
is above the coupon rate
2/9
ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED ANSWERS
Adjusting the value of cash flows based
time value of money
on when the cash flows are received.
the amount of money in the future that an
amount of money today will yield, given Future Value
prevailing interest rates
The value today of a future cash flow or
Present Value
series of cash flows
The arithmetic process of determining
the final value of a cash flow or series
Compounding
of cash flows when compound interest is
applied
FVn = PV(1+ I)^n
N: Time / Number of years, I: Interest rate
Know how to solve for the future value,
per year • Aside: use annual compound-
present value, the interest rate, or time.
ing §PV, FV: • Amount of Money Starting
With (PV) or Ending With (FV)
the sum of all deposits plus all interest
paid.
Value of an annuity
KEY POINT: • To solve, we use PMT and
set either Future value or present value
to zero
Understand how different compounding
Daily! Interest on interest! periods impact cash flows (which com-
pounding period would you prefer?)
A long-term debt instrument in which a
borrower agrees to make payments of
bond
principal and interest, on specific dates,
to the holders of the bond.
Par value, coupon interest rate, maturity
What are the five key features of a bond?
date, issue date, and yield to maturity.
the amount that an investor pays to pur-
chase a bond and that will be repaid to
1/9
, BA 323 SDSU EXAM 2 | ALL QUESTIONS AND CORRECT ANSWERS (DETAI
ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED ANSWERS
the investor at maturity.
par value
Par value = Future value
the percentage of a bond's par value
that will be paid annually, typically in two
equal semiannual payments, as interest.
coupon interest rate
(stated interest rate paid by the issuer.
Multiply by par value to get dollar pay-
ment of interest.)
years until the bond must be repaid. Mature Date
when the bond was issued issue date
the rate of return a bondholder will re-
ceive if the bond is held to maturity. yield to maturity
"promised yield".
a provision in a bond contract that gives
the issuer the right to redeem the bonds
under specified terms prior to the normal
maturity date. call provision
*Companies like these incase interest
rates go down! Investors don't!
Penalty paid by the corporation is a bond
is called (amount in excess of par-value).
call premium
Bond investors require higher yields
Typically requires 5 to 10 years to call
When does the value of a bond equal its
At maturity!
par value?
a bond that sells above its par value; oc-
curs whenever the going rate of interest premium bond
is below the coupon rate
A bond that sells below its par value; oc-
curs whenever the going rate of interest discount bond
is above the coupon rate
2/9
