...finance is all about allocation of assets or money. But how to make decision? So the potential investor needs information to support their decision. So they come to see the accounting statements. It is a real reflection of the condition of one company if there is no fake information. After the information is got from accounting, they could allocate money. So at very bottom line we can summarize that the accounting is a tool to support the finance to make money. 2. Equity premium puzzle Actually this terminology really puzzled me when I looked at it for the first time. A lot of complicated formulas are involved in it. Unfortunately I am not good at mathematics, but fortunately I will talk about formulas because I was always failed in my math exams. What can I do? Use a simple example to show my understanding. Most of us here were born in 1970s or 1980s, we will retire in 30 years or even longer. Are you sure you could get enough pension 30 years later? Not exactly. The amount of pension is not...
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...Submitted by: Hanan Tariq, Mansoor Amin, Assad Hamid khan ID: F1F1MBAM0025-0022-0028 Section: MBA-A3 Course: Business Math Submitted To: PROF. Faizan Wajid SR# | Contents | Page# | 1 | Loan | 3 | 3 | Amortization | 4-5 | 4 | Amortization of Intangible Assets | 6-7 | 5 | Sinking Fund | 8-9 | 6 | Examples Problems | 9-12 | 7 | References | 13 | | | | | | | | | | | | | | | | | | | | | | Loan Definition Written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. If the loan is repayable on the demand of the lender, it is called a demand loan. If repayable in equal monthly payments, it is an installment loan. If repayable in lump sum on the loan's maturity (expiration) date, it is a time loan. Banks further classify their loans into other categories such as consumer, commercial, and industrial loans, construction and mortgage loans, and secured and unsecured loans. A written promise to repay the loan is called a promissory note. Use loan in a sentence I really wanted a home because I saw other people living in nice homes but I am poor so I decided to apply for a loan. A loan may be able to provide you with the cash you need to buy your first, or even, second home. Leland was nervous about his upcoming meeting at the bank...
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...Bond prices, interest rates, spot rates Ex: a bond gets issued at $1000 par value, with a coupon rate of 10%. The bond will expire in 5 years. We know that the coupon payments are $100 (10% of par value). The payments happen at the end of each year. So at the end of year 1, the bondholder gets $ Now, the interest rate goes up. WHY WOULD THE INTEREST RATE GO UP? IS IT THE CENTRAL BANK THAT DETERMINES THAT THIS INTEREST RATE MOVE UP? IS THIS INTEREST RATE (FOR ONLY ONE PERIOD) THE SAME AS THE SPOT RATE? ALSO, UNTIL BEFORE WE STARTED TALKING ABOUT SPOT RATES WE ALWAYS ASSUMED THAT “INTEREST RATES WERE THE SAME EACH YEAR”. DOES THIS MEAN THAT THE TERM STRUCTURE OF INTEREST RATES IS FLAT? What happens to the bond? The coupon payments are still going to be the same ($100 at the end of each year). But the yield to maturity changes. What is the YTM? * It is the total return you will receive if you hold the bond until maturity * The rate of return anticipated on a bond if held until the end of its lifetime. * It’s considered a long-term bond yield expressed as an annual rate. * The YTM calculation takes into account the bond’s current market price (PV of all of the bond’s cash flows), par value, coupon interest rate, and time to maturity. * It assumes that all coupon payments are reinvested at the same rate as the bond’s current yield (WHAT DOES THIS ACTUALLY MEAN? IF YOU SELL IT BEFORE IT MATURES, THEN YOU DON’T GET THAT ACTUAL YIELD? IS IT BECAUSE SINCE...
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...Fall 2009 - FlN150 - T.white - FTNAL EXAM - DERtvATtvES MATH DIRECTIONS: You must do all work on the blank sheets provided. UNLTKE FOR THE 3 TESTS, YOU SHOULD ATTEMPT ALL 10 QUESTIONS. Note that each question is equally weighted (25 points each), so that the total points possible on this exam is 250. you may use a calculator and the normal distribution tables. The questions are ordered based on when the material first appears in your textbook. Good luck! / /1) d6nominated interest rate is 5%. The price of a 2-year U.S.-@Ddenominated T=2 pyloqtion on Canpdial dollars, with a strike price of S1, is S.tO. Find the price of (,ooo )-v"^, u.s.@Jlddenominated calloptions on canadifr-doilars. .,/r. r Suppose the current exchange rate is L.l-0 Canadian dollars per 1. U.S. dollar. Also, the Canadian-dollar-denominated interest rate is 4%, wbilqthe U.S.-dollar- rA* I : l'l cS/frf or. r Ycs =.0 v, f a =.oJ -l v 2)7You are considering entering into a box spread, whereby you buy a 45-strike call z/ option for 58.50, sell a 45-strike put option for 53.50, sell a So-strike call option for 56.50, and buy a S0-strike put option for 56.00. Assume that all options can only be exercised 1 year from now. Also, assume that the continuously compounded risk-free interest rate is 3%. Construct a profit table (at time T) to demonstrate than an arbitrage opportunity exists (based on the given option ' prices), and state the amount of the guaranteed profit...
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...Evaluating Performance 1. Introduction Choosing investments is just the beginning of your work as an investor. As time goes by, you’ll need to monitor the performance of these investments to see how they are working together in your portfolio to help you progress toward your goals. Generally speaking, progress means that your portfolio value is steadily increasing, even though one or more of your investments may have lost value. On the other hand, if your investments are not showing any gains or your account value is slipping, you’ll have to determine why and decide on your next move. In addition, because investment markets change all the time, you’ll want to be alert to opportunities to improve your portfolio’s performance, perhaps by diversifying into a different sector of the economy or allocating part of your portfolio to international investments. To free up money to make these new purchases, you may want to sell individual investments whose performance has been disappointing while not abandoning the asset allocation you’ve selected as appropriate. To assess how well your investments are doing, you’ll need to consider several different ways of measuring performance. The measures you choose will depend on the exact information you’re looking for and the types of investments you own. For example, if you have a stock that you hope to sell in the short term at a profit, you may be most interested in whether its market price is going up, has started to slide or...
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...Name:_______________________________ Financial Management (BUSI 640) Professor Faulkender Midterm Exam: Fall 2012 1) The exam is open book and open notes. You may use Excel and a calculator. 2) Point totals for each question are specified in parentheses. There are 220 total points. 3) Circle your numerical answers. This makes it easier for me to find them. Show all calculations and the inputs of all values solved for using your calculator or Excel. This allows me to determine how your numbers were arrived at. If you get stuck on the math, tell me what the correct answer should be based on your intuition. Incorrect numerical answers based on the correct logic will receive partial credit. 4) Your answer should be given in the space provided. If you need more space, feel free to write on the back of the page, but clearly mark the question number you are answering. If you would like to add pages from your Excel spreadsheet, please staple them following the corresponding question. You may also upload your spreadsheet to Blackboard. 5) As always, I expect you to abide by the honor code. I trust that no one will give or receive assistance which gives them an unfair advantage over other students. You should not speak about the exam to anyone who has not yet completed it. Please write the following below, consistent with the Smith School Honor Code: "I pledge on my honor that I have not given or received any unauthorized assistance on this exam." ...
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...Notes Chapter 10 – bond prices and yields 10.1 Bond Characteristics Bond: A security that obligates the issure to make specific payments to the holder over time. Face value/par value: The payment at which is made at maturity to the bond holder Coupon rate: A bonds annual interest payment per dollar of par value Zero coupon bonds: pays no coupons, sells at discount, provides only payment of par value at maturity. If a bond is purchased between coupon dates the buyer must pay the seller for accrued interest. [Formula] Corporate Bonds: like government bonds except issued by companies. Floating rate bonds: Coupon rates periodically reset according to specified market date. Preference Stock: Although strictly classified as equity, it is often included in fixed income universe. Preference stock often pay a fixed dividend. Other domestic issuers: there are other issuers of bonds. Local governments issue municipal bonds to finance local projects. International bonds: * Foreign bonds: issued by a borrower from a country other than the one in which the bond is sold. These are dominated in the currency of the market country. * Eurobonds: different as denominated in currency (usually of the issuing country) different than that of market. Inflation protected securities: face values change with changes in price level. There is a fixed coupon rate, the amount changes with principle. 10.2 Bond pricing: Bond value = PV of coupons...
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...Homework Assignment – Week 2 Chapter 3 1. Write down the formula that is used to calculate the yield to maturity on a 20-year 10% coupon bond with $1,000 face value that sells for $2,000. Assume yearly coupons. $2000 $100/(1 i) $100/(1 i)2 $100/(1 i)20 $1000/(1 i)20 2. If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk? You would rather be holding long-term bonds because their price would increase more than the price of the short-term bonds, giving them a higher return. 3. A financial advisor has just given you the following advice: “Long-term bonds are a great investment because their interest rate is over 20%.” Is the financial advisor necessarily correct? No. If interest rates rise sharply in the future, long-term bonds may suffer such a sharp fall in price that their return might be quite low, possibly even negative. 4. If mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 2% to 9%, are people more or less likely to buy houses? People are more likely to buy houses because the real interest rate when purchasing a house has fallen from 3 percent (5 percent –2 percent) to 1 percent (10 percent 9 percent). The real cost of financing the house is thus lower, even though mortgage rates have risen. (If the tax deductibility of interest payments is allowed for, then...
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...Pricing and Trading CHAPTER OUTLINE How are Price and Yield of a Bond Calculated? • Calculating the Fair Price of a Bond • Calculating the Yield on a Treasury Bill • Calculating the Current Yield on a Bond • Calculating the Yield to Maturity on a Bond What is the Term Structure of Interest Rates? • The Real Rate of Return • The Yield Curve What are the Fundamental Bond Pricing Properties? • The Relationship Between Bond Prices and Interest Rates • The Impact of Maturity • The Impact of the Coupon • The Impact of Yield Changes • Duration as a Measure of Bond Price Volatility What are Bond-Switching Strategies? How does Bond Market Trading Work? • Clearing and Settlement • Calculating Accrued Interest © CSI GLOBAL EDUCATION INC. (2011) 7•3 What are Bond Indexes? • Canadian Bond Market Indexes • Global Indexes Summary LEARNING OBJECTIVES By the end of this chapter, you should be able to: 1. Defi ne present value and the discount rate, and perform calculations relating to the time value of money, bond pricing and yield. 2. Defi ne a real rate of return and a yield curve, and evaluate three theories of interest rate determination. 3. Analyze the impact of fi xed-income pricing properties on bond prices. 4. Explain the rationale for bond switching and describe bond-switching strategies. 5. Summarize the rules and regulations of bond delivery and settlement. 6. Assess the role of bond indexes in the securities industry. THE FIXED-INCOME MARKET IN ACTION ...
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...Paper On Topic: Bond Market In Bangladesh . Course Code :FIN-361. Course Title :Corporate Finance . Submitted To : MD.Nazmul Hasan. Faculty, School of Business, University of Information Technology & Sciences Submitted By : NAME ID Nazibur Rahman : 08410105 Abdullah- al Zihad : 08510061 Qazi Ismat Ahmed Rushe’d Chowdhery : 08410106 Date of Submission : 14th December, 2010. Executive Summary The bond market is a financial market where participants buy and sell debt securities, usually in the form of bonds. Like emerging-market countries around the world, Bangladesh could benefit from having a local-currency, fixed-income securities market. At present, its main fixed-income financial products are bank deposits, bank loans, government savings certificates, term loans, treasury bills, and government bonds and corporate debt (syndicated loans, private placement, and debentures). But in general the corporate debt market is still very small compared with the equity market. Numerous factors in Bangladesh today suggest that Bangladesh will not be able to develop an active, local-currency fixed-income market. In this paper, we will discuss the current situation of our bond market, what the drawbacks are and what may be the remedy for overcoming these drawbacks. Bangladesh's bond market represents...
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...VAULT CAREER GUIDE TO INVESTM E NT BAN KING 2008 EDITION is made possible through the generous support of the following sponsors: Customized for: Triston Francis (tfran@wharton.upenn.edu) SEO Online Career Library The media’s watching Vault! Here’s a sampling of our coverage. “For those hoping to climb the ladder of success, [Vault’s] insights are priceless.” – Money magazine “The best place on the web to prepare for a job search.” – Fortune “[Vault guides] make for excellent starting points for job hunters and should be purchased by academic libraries for their career sections [and] university career centers.” – Library Journal “The granddaddy of worker sites.” – U.S. News & World Report “A killer app.” – New York Times Customized for: Triston Francis (tfran@wharton.upenn.edu) SEO Online Career Library One of Forbes’ 33 “Favorite Sites” – Forbes “To get the unvarnished scoop, check out Vault.” – SmartMoney Magazine “Vault has a wealth of information about major employers and jobsearching strategies as well as comments from workers about their experiences at specific companies.” – The Washington Post “A key reference for those who want to know what it takes to get hired by a law firm and what to expect once they get there.” – New York Law Journal “Vault [provides] the skinny on working conditions at all kinds of companies from current and former employees.” – USA Today Customized for: Triston Francis (tfran@wharton.upenn.edu) SEO Online Career Library ...
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...Manuscript: Debt Instruments and Markets MBA Course B40.3333 David Backus Stern School of Business New York University New York NY 10012-1126 Working Draft: No Guarantees August 27, 1998 Home page: http: www.stern.nyu.edu ~dbackus Contents Preface 1 Debt Instruments 1.1 Overview : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 1.2 The Instruments : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : v 1 1 2 I Instruments with Fixed Payments 2 Bond Arithmetic 2.1 Prices and Yields in the US Treasury Market : : : : : : : : : : : : : : : : : 2.2 Replication and Arbitrage : : : : : : : : : : : : : : : : : : : : : : : : : : : : 2.3 Day Counts and Accrued Interest : : : : : : : : : : : : : : : : : : : : : : : : 2.4 Other Conventions : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 2.5 Implementation Issues : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 2.6 Common Yield Fallacies : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 2.7 Forward Rates optional : : : : : : : : : : : : : : : : : : : : : : : : : : : : 8 9 9 14 17 19 23 24 26 3 Macrofoundations of Interest Rates 39 CONTENTS i 4 Quantifying Interest Rate Risk 4.1 Price and Yield : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 4.2 More on Duration : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : 4.3 Immunization : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :...
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...Berk/DeMarzo Corporate Finance* Berk/DeMarzo Corporate Finance: The Core* Berk/DeMarzo/Harford Fundamentals of Corporate Finance* Bierman/Smidt The Capital Budgeting Decision: Economic Analysis of Investment Projects Bodie/Merton/Cleeton Financial Economics Click/Coval The Theory and Practice of International Financial Management Copeland/Weston/Shastri Financial Theory and Corporate Policy Cox/Rubinstein Options Markets Dietrich Financial Services and Financial Institutions: Value Creation in Theory and Practice Dorfman Introduction to Risk Management and Insurance Dufey/Giddy Cases in International Finance Eakins Finance in .learn Eiteman/Stonehill/Moffett Multinational Business Finance Emery/Finnerty/Stowe Corporate Financial Management Fabozzi Bond Markets: Analysis and Strategies Fabozzi/Modigliani Capital Markets: Institutions and Instruments Fabozzi/Modigliani/Jones/Ferri Foundations of Financial Markets and Institutions Finkler Financial Management for Public, Health, and Not-for-Profit Organizations Francis/Ibbotson Investments: A Global Perspective Fraser/Ormiston Understanding Financial Statements Geisst Investment Banking in the Financial System Gitman Principles of Managerial Finance* Gitman Principles of...
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...between the Risky asset and the risk-free Asset ....... 17 Chapter Eight: Optimal Risky Portfolios:......................................................................... 20 Chapter Nine: The Capital Asset Pricing Model .............................................................. 24 Chapter Ten: Index Models: ............................................................................................. 28 Chapter Eleven: Arbitrage Pricing Theory and multifactor models of risk and return .... 32 Chapter Twelve: Market Efficiency and Behavioral Finance........................................... 35 Chapter Fourteen: Bond prices and yields ........................................................................ 43 Chapter Fifteen: The Term Structure of Interest Rates..................................................... 48 Chapter Sixteen: Managing Bond Portfolios .................................................................... 53 Chapter Eighteen: Equity Valuation Models .................................................................... 57 Chapter Twenty: Option Markets: Introduction ............................................................... 59 Chapter Twenty-one: Option...
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...Defining Financial Terms 1. Finance: Finance is the science of the management of money and other assets. This is essential for businesses with importance to capital and holdings. (Titman, Keown, & Martin, 2011) 2. Efficient Market: Efficient market is defined as a price where the holdings show both current as well as relevant figures; the assets fundamentally have their actual prices. The affiliation to finance is that the statement of information efficiency is operating in asset management with respect to their assessments. 3. Primary Market: Primary market is defined as a market relating to new securities where the securities are sold first (Titman, Keown, & Martin, 2011) . The securities are directly purchased from the issuer. This is important in finance ability as an importance of the fact that the growth of long-term capital through the issuance of securities is a necessary issue in finance. 4. Secondary Market: Secondary market is defined as where securities are traded that has earlier been issued within the primary market (Titman, Keown, & Martin, 2011). Usually, the securities are issued in either public offering or private. This is necessary within finance because these markets provide liquidity to stake holders. 5. Risk: Risk is defined as a possibility when the investment might potentially be unsuccessful to receive the expected returns, which may result in the loss of the original investment. It is very important within finance to assess...
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