BA 323 SDSU EXAM 2 | ALL QUESTIONS AND CORRECT ANSWERS
BA 323 SDSU Exam 2
(DETAILED ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED
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ANSWERS
1. time value of money Adjusting the value of cash flows based on when the cash flows are
received.
2. Future Value the amount of money in the future that an amount of money today will
yield, given prevailing interest rates
3. Present Value The value today of a future cash flow or series of cash flows
4. Compounding The arithmetic process of determining the final value of a cash flow or
series of cash flows when compound interest is applied
5. Know how to solve for FVn = PV(1+ I)^n
the future value, present N: Time / Number of years, I: Interest rate per year • Aside: use annual
value, the interest rate, compounding §PV, FV: • Amount of Money Starting With (PV) or Ending
or time. With (FV)
6. Value of an annuity the sum of all deposits plus all interest paid.
KEY POINT: • To solve, we use PMT and set either Future value or present
value to zero
7. Understand how differ- Daily! Interest on interest!
ent compounding peri-
ods impact cash flows
(which compounding pe-
riod would you prefer?)
8. bond A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of
the bond.
9. What are the five key fea- Par value, coupon interest rate, maturity date, issue date, and yield to
tures of a bond? maturity.
, BA 323 SDSU Exam 2
Study online at https://quizlet.com/_7epnhw
10. par value the amount that an investor pays to purchase a bond and that will be
repaid to the investor at maturity.
Par value = Future value
11. coupon interest rate the percentage of a bond's par value that will be paid annually, typically
in two equal semiannual payments, as interest.
(stated interest rate paid by the issuer. Multiply by par value to get dollar
payment of interest.)
12. Mature Date years until the bond must be repaid.
13. issue date when the bond was issued
14. yield to maturity the rate of return a bondholder will receive if the bond is held to
maturity. "promised yield".
15. call provision 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.
*Companies like these incase interest rates go down! Investors don't!
16. call premium Penalty paid by the corporation is a bond is called (amount in excess of
par-value).
Bond investors require higher yields
Typically requires 5 to 10 years to call
17. When does the value of a At maturity!
bond equal its par value?
18. premium bond a bond that sells above its par value; occurs whenever the going rate of
interest is below the coupon rate
BA 323 SDSU Exam 2
(DETAILED ANSWERS) | GRADED A+ | NEWEST VERSION | VERIFIED
Study online at https://quizlet.com/_7epnhw
ANSWERS
1. time value of money Adjusting the value of cash flows based on when the cash flows are
received.
2. Future Value the amount of money in the future that an amount of money today will
yield, given prevailing interest rates
3. Present Value The value today of a future cash flow or series of cash flows
4. Compounding The arithmetic process of determining the final value of a cash flow or
series of cash flows when compound interest is applied
5. Know how to solve for FVn = PV(1+ I)^n
the future value, present N: Time / Number of years, I: Interest rate per year • Aside: use annual
value, the interest rate, compounding §PV, FV: • Amount of Money Starting With (PV) or Ending
or time. With (FV)
6. Value of an annuity the sum of all deposits plus all interest paid.
KEY POINT: • To solve, we use PMT and set either Future value or present
value to zero
7. Understand how differ- Daily! Interest on interest!
ent compounding peri-
ods impact cash flows
(which compounding pe-
riod would you prefer?)
8. bond A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of
the bond.
9. What are the five key fea- Par value, coupon interest rate, maturity date, issue date, and yield to
tures of a bond? maturity.
, BA 323 SDSU Exam 2
Study online at https://quizlet.com/_7epnhw
10. par value the amount that an investor pays to purchase a bond and that will be
repaid to the investor at maturity.
Par value = Future value
11. coupon interest rate the percentage of a bond's par value that will be paid annually, typically
in two equal semiannual payments, as interest.
(stated interest rate paid by the issuer. Multiply by par value to get dollar
payment of interest.)
12. Mature Date years until the bond must be repaid.
13. issue date when the bond was issued
14. yield to maturity the rate of return a bondholder will receive if the bond is held to
maturity. "promised yield".
15. call provision 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.
*Companies like these incase interest rates go down! Investors don't!
16. call premium Penalty paid by the corporation is a bond is called (amount in excess of
par-value).
Bond investors require higher yields
Typically requires 5 to 10 years to call
17. When does the value of a At maturity!
bond equal its par value?
18. premium bond a bond that sells above its par value; occurs whenever the going rate of
interest is below the coupon rate
