Day 3
Coupon payment / the bond's original price
Nonconstant Growth Valuation Method
A method for finding the value of stock that works under the belief that the stock's value will change every year.
With this kind of loan, you make monthly payments. A portion of these payments goes toward your principal and the rest goes toward paying off interest.
Principal (1 + interest rate / how many times a year interest compounds) ^ (how many times a year interest compounds number of years)
Future value required / ((1 + periodic rate of return) ^ number of periods)
This is how much an investment you make today will be worth at some point in the future.
This is calculated at set intervals of time. It involves calculations on accrued interest and the principal. If you put money in a savings account, it accrues this kind of interest.
Present value * (1 + interest rate)^number of time periods
These are payments that are calculated by taking the bond's fixed margin and adding its index.
We consider this to be a rate of interest that has been adjusted to account for inflation. It is calculated with something called the Fisher equation.
These rates vary based on the length of the bond. Short-term bonds usually have low rates, while longer-term bonds have higher rates.
Present Value of a Perpetuity: Formula
Dividend / discount rate
If you take out this kind of loan, you make initial payments that are only for interest. However, eventually you will have to start making extra payments to cover your principal balance.
You won't get any interest from these bonds. Instead, once the bond reaches maturity you can redeem it for its face value.
This represents how much money an investor gets from his or her investment. Generally, if a bond has a lower market price, this will be higher.
This is how much of today's money, invested at an interest rate, that will be equal to single or multiple payments at a point in the future.
The coupon for these bonds is variable and connected to some outside variable along with a margin rate that is fixed.
These are payments that have no maturity or end date.
A process that causes prices to climb over time while money drops in value. This means products will cost more as time passes.
Nominal interest rate - expected rate of inflation
Zero-Growth Valuation Method: Formula
Dividend for an individual share of stock / rate of return
Use this method to value stock that has an non-moving dividend rate. This tells you how much you should pay for each share of this kind of stock.
A loan that you sell at one price with a set maturity date, at which point you pay the loan back at its face value. For example, you could sell a $10 loan for $5 that matures in a week.
Efficient Market Hypothesis (EMH)
This tells us that everyone participating in a market can access the same facts, ensuring an accurate value for stock prices, meaning a market will adjust according to changes in expectations.
Efficient Market Hypothesis (EMH): Forms
Weak-form
Semi-strong
Strong-form
Sale price - purchase price + dividends = return in dollars
Geometric Average / Mean: Formula
{(a x b x c x d x e) ^1/n} - 1. Convert percentages to decimals before beginning by adding one to each percentage.
Looking at this tells you how much actual currency you get back from an investment. It doesn't directly correlate to the percentage return and may be high while the percentage return is low.
Investment Returns: Normal Distribution / Gaussian Distribution
Investment returns distributed in this way will take the shape of a bell curve, because it will be in the shape of a bell.
Arithmetic Average / Mean: Formula
To determine this for a group of numbers, you add all the numbers together and divide your total by the amount of numbers you added.
Empirical Rule / 68-95-99.7 Rule
A rule that tells us how data will be arranged around the mean when distributed normally.
A way of looking at the money you make on an investment compared to the money you make on other investments. It shows how much you make compared to how much you spent.
The standard method for finding an average. You use this method when finding out your average grade in a class, but it can mislead you if used to calculate average returns.
Look at this rate to see how much money you get after paying the initial costs for an investment. It provides information in percentage form and may be positive or negative.
((Current value - original value) / original value) x 100
Empirical Rule / 68-95-99.7 Rule: Distribution of Data
Within one standard deviation of the mean: 68%
Within two standard deviations of the mean: 95%
Within three standard deviations of the mean: 99.7%
Rate of Return: Original Value of an Investment
This represents the price you paid to initially buy an object or investment.
Rate of Return: Current Value of an Investment
We consider this to be how much money an investment is worth at the present time.
A way to look at data's variability or spread when considering normal distribution.
(Sales price - purchase price + dividends) / purchase price
Efficient Market Hypothesis (EMH): Effects on Competitive Advantage
Because of this hypothesis, we know investors can't gain great benefits. This is because market prices account for all pieces of information.
A way to find the average that looks at the past performance of an investment.
Stock Options: Benefits to Employees
These offer employees a pay incentive, allowing businesses to cut costs and still offer rewards to employees who are performing well.
An investment that you may purchase on an options exchange. It gives you the chance to purchase stock shares that are at certain prices. Dilution is not caused by this investment.
A contract option for stocks that allows you the chance to sell your stocks at a price that has been predetermined.
We consider this to be an arrangement that allows the employees of a business to purchase company stocks for a predetermined price. This must usually be accomplished in a certain amount of time.
The value of these financial instruments is determined by the value of a different financial instrument. Stock option contracts are considered an example of this.
This is a stock contract designed to give you the right to purchase options at a price that was previously set up.
A process that occurs when new stocks are created by a company. The presence of these stocks reduces the value of pre-existing stocks, lessening their proportion of ownership.
This is the date at which point a purchasing offer for call options or warrants expires.
Businesses can make this kind of offer to investors. It includes a purchase price and a premium, as well as a date when it expires. They may cost less and earn more money than stocks.
Offering these instead of stocks allows businesses to maintain voting rights. Additionally, companies don't have to offer repayment for several years with these.
Securities and Exchange Commission (SEC): Protection
This organization looks at the financial health of companies that offer stocks and bonds. This helps build investor confidence.
Accounting Rate of Return / Simple Rate of Return / Average Accounting Return
You can look at this to estimate how much profit you'll earn off of an investment.
A formula that allows you to figure out how long it will take an investment to pay for itself.
Another term for money. In order to raise this, companies may sell stocks or offer bonds to investors.
Modified Accelerated Cost Recovery System (MACRS)
A system that provides information about how items that will last for over a year will depreciate.
Accounting Rate of Return / Simple Rate of Return / Average Accounting Return: Formula
Average profit / average investment x 100. The answer is written as a percent.
These are shares of ownership in a company. There are two types: common and preferred. Both are considered to be equity.
In investing, this term is used when discussing the risk an investment offers as it relates to some type of benchmark.
Securities and Exchange Commission (SEC)
This regulatory body requires companies to register before they can publically offer their stock. Businesses must pay a registration fee as part of this process.
Companies may choose to issue these instead of bonds because they don't always require the company to pay out dividends.
The inherent risk of investing in the stock market. This risk does not indicate anything about a specific stock, but reflects the entire market as a whole.
Businesses use this process to try to raise the number of bond sales. This process requires businesses to spend money.
Owning this kind of stock guarantees that you will earn dividends and gives you a percentage of ownership in a company. However, you can't vote on company changes.
How much money you lose by not investing your money somewhere.
Initial investment / annual net cash flow = payback period. Find out what your initial investment should be by using the equation: payback period x annual net cash flow.
Investors who own this kind of stock are given voting rights and a percentage of company ownership. They don't get a guarantee on dividend payouts.
Day 3
Coupon payment / the bond's original price
Nonconstant Growth Valuation Method
A method for finding the value of stock that works under the belief that the stock's value will change every year.
With this kind of loan, you make monthly payments. A portion of these payments goes toward your principal and the rest goes toward paying off interest.
Principal (1 + interest rate / how many times a year interest compounds) ^ (how many times a year interest compounds number of years)
Future value required / ((1 + periodic rate of return) ^ number of periods)
This is how much an investment you make today will be worth at some point in the future.
This is calculated at set intervals of time. It involves calculations on accrued interest and the principal. If you put money in a savings account, it accrues this kind of interest.
Present value * (1 + interest rate)^number of time periods
These are payments that are calculated by taking the bond's fixed margin and adding its index.
We consider this to be a rate of interest that has been adjusted to account for inflation. It is calculated with something called the Fisher equation.
These rates vary based on the length of the bond. Short-term bonds usually have low rates, while longer-term bonds have higher rates.
Present Value of a Perpetuity: Formula
Dividend / discount rate
If you take out this kind of loan, you make initial payments that are only for interest. However, eventually you will have to start making extra payments to cover your principal balance.
You won't get any interest from these bonds. Instead, once the bond reaches maturity you can redeem it for its face value.
This represents how much money an investor gets from his or her investment. Generally, if a bond has a lower market price, this will be higher.
This is how much of today's money, invested at an interest rate, that will be equal to single or multiple payments at a point in the future.
The coupon for these bonds is variable and connected to some outside variable along with a margin rate that is fixed.
These are payments that have no maturity or end date.
A process that causes prices to climb over time while money drops in value. This means products will cost more as time passes.
Nominal interest rate - expected rate of inflation
Zero-Growth Valuation Method: Formula
Dividend for an individual share of stock / rate of return
Use this method to value stock that has an non-moving dividend rate. This tells you how much you should pay for each share of this kind of stock.
A loan that you sell at one price with a set maturity date, at which point you pay the loan back at its face value. For example, you could sell a $10 loan for $5 that matures in a week.
Efficient Market Hypothesis (EMH)
This tells us that everyone participating in a market can access the same facts, ensuring an accurate value for stock prices, meaning a market will adjust according to changes in expectations.
Efficient Market Hypothesis (EMH): Forms
Weak-form
Semi-strong
Strong-form
Sale price - purchase price + dividends = return in dollars
Geometric Average / Mean: Formula
{(a x b x c x d x e) ^1/n} - 1. Convert percentages to decimals before beginning by adding one to each percentage.
Looking at this tells you how much actual currency you get back from an investment. It doesn't directly correlate to the percentage return and may be high while the percentage return is low.
Investment Returns: Normal Distribution / Gaussian Distribution
Investment returns distributed in this way will take the shape of a bell curve, because it will be in the shape of a bell.
Arithmetic Average / Mean: Formula
To determine this for a group of numbers, you add all the numbers together and divide your total by the amount of numbers you added.
Empirical Rule / 68-95-99.7 Rule
A rule that tells us how data will be arranged around the mean when distributed normally.
A way of looking at the money you make on an investment compared to the money you make on other investments. It shows how much you make compared to how much you spent.
The standard method for finding an average. You use this method when finding out your average grade in a class, but it can mislead you if used to calculate average returns.
Look at this rate to see how much money you get after paying the initial costs for an investment. It provides information in percentage form and may be positive or negative.
((Current value - original value) / original value) x 100
Empirical Rule / 68-95-99.7 Rule: Distribution of Data
Within one standard deviation of the mean: 68%
Within two standard deviations of the mean: 95%
Within three standard deviations of the mean: 99.7%
Rate of Return: Original Value of an Investment
This represents the price you paid to initially buy an object or investment.
Rate of Return: Current Value of an Investment
We consider this to be how much money an investment is worth at the present time.
A way to look at data's variability or spread when considering normal distribution.
(Sales price - purchase price + dividends) / purchase price
Efficient Market Hypothesis (EMH): Effects on Competitive Advantage
Because of this hypothesis, we know investors can't gain great benefits. This is because market prices account for all pieces of information.
A way to find the average that looks at the past performance of an investment.
Stock Options: Benefits to Employees
These offer employees a pay incentive, allowing businesses to cut costs and still offer rewards to employees who are performing well.
An investment that you may purchase on an options exchange. It gives you the chance to purchase stock shares that are at certain prices. Dilution is not caused by this investment.
A contract option for stocks that allows you the chance to sell your stocks at a price that has been predetermined.
We consider this to be an arrangement that allows the employees of a business to purchase company stocks for a predetermined price. This must usually be accomplished in a certain amount of time.
The value of these financial instruments is determined by the value of a different financial instrument. Stock option contracts are considered an example of this.
This is a stock contract designed to give you the right to purchase options at a price that was previously set up.
A process that occurs when new stocks are created by a company. The presence of these stocks reduces the value of pre-existing stocks, lessening their proportion of ownership.
This is the date at which point a purchasing offer for call options or warrants expires.
Businesses can make this kind of offer to investors. It includes a purchase price and a premium, as well as a date when it expires. They may cost less and earn more money than stocks.
Offering these instead of stocks allows businesses to maintain voting rights. Additionally, companies don't have to offer repayment for several years with these.
Securities and Exchange Commission (SEC): Protection
This organization looks at the financial health of companies that offer stocks and bonds. This helps build investor confidence.
Accounting Rate of Return / Simple Rate of Return / Average Accounting Return
You can look at this to estimate how much profit you'll earn off of an investment.
A formula that allows you to figure out how long it will take an investment to pay for itself.
Another term for money. In order to raise this, companies may sell stocks or offer bonds to investors.
Modified Accelerated Cost Recovery System (MACRS)
A system that provides information about how items that will last for over a year will depreciate.
Accounting Rate of Return / Simple Rate of Return / Average Accounting Return: Formula
Average profit / average investment x 100. The answer is written as a percent.
These are shares of ownership in a company. There are two types: common and preferred. Both are considered to be equity.
In investing, this term is used when discussing the risk an investment offers as it relates to some type of benchmark.
Securities and Exchange Commission (SEC)
This regulatory body requires companies to register before they can publically offer their stock. Businesses must pay a registration fee as part of this process.
Companies may choose to issue these instead of bonds because they don't always require the company to pay out dividends.
The inherent risk of investing in the stock market. This risk does not indicate anything about a specific stock, but reflects the entire market as a whole.
Businesses use this process to try to raise the number of bond sales. This process requires businesses to spend money.
Owning this kind of stock guarantees that you will earn dividends and gives you a percentage of ownership in a company. However, you can't vote on company changes.
How much money you lose by not investing your money somewhere.
Initial investment / annual net cash flow = payback period. Find out what your initial investment should be by using the equation: payback period x annual net cash flow.
Investors who own this kind of stock are given voting rights and a percentage of company ownership. They don't get a guarantee on dividend payouts.
