Chapter One Basic Areas of Finance: 1. Corporate Finance = Business Finance 2. Investments a. Work with financial assets such as stocks and bonds. b. Value of financial assets‚ risk verses return and asset allocation. c. Job opportunities. 3. Financial Institutions a. Companies that specialize in financial matters. i. Banks – Credit unions‚ savings‚ and loans. ii. Insurance Companies iii. Brokerage Firms b. Job Opportunities. 4. International Finance a. An area of specialization within each of the
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resources consistent with APA guidelines. Term Definition Resource you used Time value of money This refers to the principle that a dollar on hand today has more value than a dollar received sometime in the future. Keown‚ A. J.‚ Martin‚ J. D.‚ & Titman‚ S. (2014). Financial Management: Principles and Applications (12th ed.). : Pearson Education‚ Inc.. Efficient market Refers to the type of market where everyone receives the same time of information and prices are reflected based on this information. Business
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Time Value of Money 1) A store offers two payment plans. Under the installment plan‚ you pay 20% down and 20% of the purchase price in each of the next 4 years. If you pay the entire bill immediately‚ you can take a 5% discount from the purchase price. | a. | Calculate the present value of the payments‚ if you can borrow or lend funds at a 7% interest rate. Assume the product sells for $100. (Do not round intermediate calculations. Round your answer to 2 decimal places.) | Present value
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Perpetuity: The value of a perpetuity of $RM1 per year is: Equivalent Annual Cost: If an asset has a life of ‘t’ years‚ the equivalent annual cost is: Annuity: The value of an annuity of $RM1 per period for t years (t-year annuity factor) is: Measures of Risk: Variance of returns = σ2 = expected value of Standard deviation of returns‚ σ = Covariance between returns of stocks 1 & 2 = σ1‚2 = expected value of Correlation
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target customers to the gala event= 50‚000 e. An entertainment seeker = 2‚000 2. Without discounting cash flows to take into account the time value of money‚ how soon will MBC break even on the following customers? In all cases‚ assume that revenues and variable costs to staff the cages occur on an outgoing basis but that the acquisition costs are a one-time event. a. A little leaguer = year 3 b. A summer slugger = year 3 C. An elite ballplayer is MBC places the ad in the local baseball enthusiast’s
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Security Valuation: Current yield = annual interest payment market price of bonds. Basic Security Valuation Equation: Value (V) = CF1 + CF2 + …… + CFn + Mn (1+k)1 (1+k)2 (1+k)n (1+k)n Valuing Preferred Stock: Vps = annual dividend = D required rate of return kps Valuing Common Stock: Common Stock Value With Zero Growth. “A zero growth stock is perpetuity” P0 = D where: D dividend the investor expect ks
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Question 1 (5 points) $50 today is worth MORE than $50 tomorrow. Your Answer Score Explanation True Correct 5.00 Correct. You understand Time value of money. False Total 5.00 / 5.00 Question Explanation We have assumed time value of money is positive. Question 2 (5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest. Your Answer Score Explanation True Correct 5.00 Correct. You know the mechanics for calculating
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prices reflect expectations for value-creating earnings and cash flows many years in the future. The mismatch between a short forecast horizon and asset prices that reflect long-term cash flows leads to the second problem: investors have to compensate for the undersized horizon by adding value elsewhere in the model. The prime candidate for the value dump is the continuing‚ or terminal‚ value. The result is often a completely non-economic continuing value. This value misallocation leaves both parts
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strategic financial planning to achieve desirable results. Time value of money definition relates to the “worth of the dollar today‚ tomorrow‚ and in the future. It is a critical consideration in business‚ economic‚ and personal annuity investments. Time values of money can help a company determines future sums of money resulting from an investment” (W.sons‚ 1995). Efficient Market is a” theory that securities prices correctly measure the current value of a firm’s future earnings and dividends. This theory
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investors demand a minimum return for delaying consumption that must be greater than the anticipated rate of inflation. If they didn’t receive enough to compensate for anticipated inflation‚ investors would purchase whatever goods they desired ahead of time or invest in assets that were subject to inflation and earn the rate of inflation on those assets. There isn’t much incentive to postpone
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