SPEA v 361 Exam 2

future value

=FV(rate,nper,pmt,[pv],[type])

Number

=NPER(rate, pmt, pv, [fv],[type])

payment

=PMT(rate, nper, pmt, [fv], [type])

PRICE

=PRICE(settlement, maturity, rate, yld, redemption, frequency)

present value

=PV(rate,nper,pmt,[fv],[type])

rate

=RATE(nper, pmt, pv, [fv], [type], [guess])

yield

=YIELD(settlement, maturity, rate, price, redemption, frequency)

commission broker

NYSE members who execute customer orders to buy and sell stock transmitted to the exchange floor

floor brokers

NYSE members who execute orders for commission brokers on a fee basis

floor traders

NYSE members who trade for their own accounts, trying to anticipate temporary price fluctuations

specialist

a NYSE member action as a dealer in a small number of securities on the exchange floor; often called a market maker

zero coupon rate

a bond that makes no coupon payments and is thus initially priced at a deep discount

call-protected bond

a bond that, during a certain period, cannot be redeemed by the issuer

current yield

a bond's annual coupon divided by its price

deferred call provision

a call provision prohibiting the company from redeeming a bond prior to a certain date

specialist's post

a fixed place on the exchange floor where the specialist operates

proxy

a grant of authority by a shareholder allowing another individual to vote his or her shares

annuity

a level stream of cash flows for a fixed period of time

dividend growth model

a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate

protective covenant

a part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender's interest

treasury yield curve

a plot of the yields on treasury notes and bonds relative to maturity

cumulative voting

a procedure in which a shareholder may bast all votes for one member of the board of directors

straight voting

a procedure in which a shareholder may cast all votes fro each member of the board of directors

dividend yield

a stock's expected cash dividend divided by its current price

consol

a type of perpetuity

electronic communications network (ECN)

a website that allows investors to trade directly with each other

sinking fund

an account managed by the bond trustee for early bond redemption

broker

an agent who arranges security transactions among investors

dealer

an agent who buys and sells securities from inventory

call provision

an agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity

annuity due

an annuity for which the cash flows occur at the beginning of the period

perpetuity

an annuity in which the cash flows continue forever

superDOT system

an electronic NYSE system allowing orders to be transmitted directly to the specialist

debenture

an unsecured debt, usually with a maturity of 10 years or more

note

an unsecured debt, usually with a maturity under 10 years

discount

calculate the present value of some future amount

discounted cash flow (DCF) valuation

calculating the present value of a future cash flow to determine its value today

common stock

equity without priority for dividends or in bankruptcy

compound interest

interest earned on both the initial principal and the interest reinvested from prior periods

interest on interest

interest earned on the reinvestment of previous interest payments

simple interest

interest earned only on the original principle amount invested

real rates

interest rates or rates of return that have been adjusted for inflation

nominal rates

interest rates or rates of return that have not been adjusted for inflation

dividends

payments b a corporation to shareholders, made in either cash or stock

over-the-counter (OTC) market

securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories

preferred stock

stock with dividends priority over common stock, normally with a fixed dividend rate, sometimes without voting rights

call premium

the amount by which the call price exceeds the par value of a bond.

coupon rate

the annual coupon divided by the face value of a bond

interest rate risk premium

the compensation investors demand for bearing interest rate risk

present value (PV)

the current value of the future cash flows discounted at the appropriate discount rate

bid-ask spread

the difference between the bid price and the asked price

capital gains yield

the dividend growth rate, or the rate at which the value of an investment grows.

order flow

the flow of customer orders to buy and sell securities

bearer form

the form of bond issue in which the bond is issued without record of the owners name; payment is made to whomever holds the bond.

registered form

the form of bond issue in which the register of the company records ownership of each bond; payment is made directly to the owner of record.

annual percentage rate (APR)

the interest rate charged per period multiplied by the number of periods per year

effective annual rate (EAR)

the interest rate expressed as if it were compounded once per year

stated interest rate

the interest rate expressed in terms of the interest payment made each period. Also known as the quoted interest rate.

primary market

the market in which new securities are originally sold to investors

secondary market

the market in which previously issued securities are traded among investors

default risk premium

the portion of a nominal interest rate or bond yield that represents compensation for the possibility of default

taxability premium

the portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status

inflation premium

the portion of a nominal interest rate that represents compensation for expected future inflation

bid price

the price a dealer is willing to pay for a security

asked price

the price a dealer is willing to take for a security

dirty price

the price of a bond including accrued interest, also know as the full or invoice price. This is the price the buyer actually pays

clean brice

the price of a bond net of accrued interest; this is the price that is typically quoted

face value

the principle amount of a bond that is repaid at the end of the term. also called par value

Compounding

the process of accumulating interest on an investment over time to earn more interest

liquidity premium

the proportion of a nominal interest rate or bond yield that represents compensation for lack of liquidity

discount rate

the rate used to calculate the present value of future cash flows

term structure of interest rates

the relationship between nominal interest rates on default-free, pure discount securities and time to maturity; that is, the pure time value of money

fisher efffect

the relationship between nominal returns, real returns, and inflation

maturity

the specific date on which the principle amount of a bond is paid

coupon

the stated interest payment made on a bond

indenture

the written agreement between the corporation and the lender detailing the terms of the debt issue.