2025 FINAL EXAM REVIEW FOR COMM 221 Financial Markets Lecture Notes: Valuation
Principles and Cash Flow Analysis Concordia University
SESSION 1
Valuation Principle
The value of an asset to the firm or its investors is determined by its competitive market price.
The benefit and costs of a decision should be evaluated using these market prices and when
benefits > costs the decision will increase the market value of the firm.
Compound interest
Interest that is earned on the principal amount and on the future interest payments.
Compounding
Bringing a single cash flow from a former point in time to a latter.
𝐹𝑉 = 𝑃𝑉 × (1 + 𝑘)𝑛
Discounting
Bringing a single cash flow from a latter point in time to a former.
𝑃𝑉 = 𝐹𝑉 𝑛
(1+𝑘)
,Interest-on-Interest
Interest earned on previous interest payments. Total Interest– Simple interest
,
, Arbitrage
The practice of buying and selling equivalent goods in different markets to take advantage of a
price difference.
→ Opportunity: possible to make a profit without taking any risk or making any investment
Annuity
A series of payments or cash flows with equal value, equal time between cash flow, equal interest
rate, finite number of cash flows.
→ Ordinary annuity: payments take place at the end of the period
→ Annuity due: payments take place at the beginning of the period
Principles and Cash Flow Analysis Concordia University
SESSION 1
Valuation Principle
The value of an asset to the firm or its investors is determined by its competitive market price.
The benefit and costs of a decision should be evaluated using these market prices and when
benefits > costs the decision will increase the market value of the firm.
Compound interest
Interest that is earned on the principal amount and on the future interest payments.
Compounding
Bringing a single cash flow from a former point in time to a latter.
𝐹𝑉 = 𝑃𝑉 × (1 + 𝑘)𝑛
Discounting
Bringing a single cash flow from a latter point in time to a former.
𝑃𝑉 = 𝐹𝑉 𝑛
(1+𝑘)
,Interest-on-Interest
Interest earned on previous interest payments. Total Interest– Simple interest
,
, Arbitrage
The practice of buying and selling equivalent goods in different markets to take advantage of a
price difference.
→ Opportunity: possible to make a profit without taking any risk or making any investment
Annuity
A series of payments or cash flows with equal value, equal time between cash flow, equal interest
rate, finite number of cash flows.
→ Ordinary annuity: payments take place at the end of the period
→ Annuity due: payments take place at the beginning of the period
