Present Value | The value of any asset is based on the _____ _____ of the cash flows the asset is expected to produce in the future |

Coupon Payments, Par Value | Bond Value is determined by the PV of _____ _____ (an annuity) and _____ _____ (a lump sum) |

Inversely | Current bond values are _____ related to interest rates |

INT | _ _ _ = dollars of interest paid each year (Coupon rate * Par value) |

Coupon Rate | Stated annual interest rate, is initially set to make the bond sell at par |

Yield to Maturity (YTM) | the rate implied by the current bond price |

Yield to Maturity (YTM) | the average rate of return earned on a bond if it is held to maturity |

Yield to Call (YTC) | the average rate of return earned on a bond if it is held until the first call date |

Equal | When rD (market value) equals the coupon rate of interest, the bond will sell at a value _____ to the par value |

Yield to Maturity (YTM) | The rate of return earned by investing in a bond |

Same | As interest rates change, so do the market values of bonds such that the rate of return earned by investing in a bond, its YTM, is the same as the appropriate interest rate in the financial markets |

Decrease | When market rates rise, bond prices _____ |

equals, par | When the market rate, rD, is equal to a bond’s coupon rate, the bond’s market price _____ its maturity (par) value and sells at ____ |

Less, Discount | When rD is greater than a bond’s coupon rate, the bond’s market price is _____ than its maturity value, and the bond sells at a _____ |

Greater, Premium | When rD is less than a bond’s coupon rate, the bond’s market price is _____ than its maturity value, and the bond sells at a _____ |

Less Than | When YTM is ______ ______ coupon, the bond trades at a premium |

Greater Than | When the YTM is _____ _____ coupon, the bond trades at a discount |

Equals | When the YTM _____ coupon, the bond trades at par |

Always | The market value of a bond will _____ approach its par value as its maturity date approaches, provided the firm does not go bankrupt |

Principal | The bond is only worth the _____ amount at the maturity date |

More | Long-term bonds have _____ price risk than a short-term bond |

Price risk | Change in price due to changes in interest rates |

More | Low coupon rate bonds have _____ price risk that high coupon rate bonds |

Reinvestment Rate Risk | Uncertainty concerning rates at which cash flows can be reinvested |

More | Short-term bonds have _____ reinvestment rate risk than long-term bonds |

More | High coupon rate bonds have _____ reinvestment rate risk than low rate bonds |

More | The long-maturity bond will have much _____ volatility with respect to changes in the discount rate |

More | The low-coupon bond will have much _____ volatility with respect to changes in the discount rate |

Issued | Coupon rate (an investor’s required return) depends on the risk of the bond when it is _____ |

Zero Coupon Bonds | _____ _____ _____ YTM comes from the difference between the purchase price and the par value |

Zero Coupon Bonds | Sometimes called deep discount bonds or original issue discount bonds (OIDs) |

Po | The actual market price of the stock today |

P(hat)(sub t) | The expected price at the end of Year t |

P(hat)(sub not) | The intrinsic value as seen by the investor |

D(hat)(sub t) | The dividend the investor expects to receive at the end of year t |

Do | most recent dividend already paid |

r(:)(sub s) | The rate of return on a common stock that an individual investor actually receives, after the fact; equal to the dividend yield plus capital gains yield |

Dividends | If you hold a stock forever, all you receive is the _____ payments |

Dividend | The value of a stock today is the present value of the _____ payments expected in the future |

Zero | If future cash flows are constant, the value of a _____ growth stock is the present value of a perpetuity |

More | The higher the P/E ratio, the _____ investors are willing to pay for each dollar earned by the firm |

Payback Period | P/E ratio gives an indication of a stock’s _____ _____ |

P/E Ratio | Can be used to value the firm based on estimated earnings and an “intrinsic” or industry mulitiple, Used to estimate the value of stock |

Opposite | Stock prices move _____ to changes in rates of return |

Same | Prices move in the _____ direction as changes in cash flows expected from the stock in the future |

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