including yield to maturity‚ holding period or realized yield‚ and expected yields with simulated future values. 4. The concept of interest rate risk is developed‚ including bond volatility concepts‚ price risk‚ and reinvestment risk. A bond volatility measure for price risk is developed. 5. The reader will study duration concepts as a measure of a) bond volatility and b) a holding time period sufficient to balance price and reinvestment risk assuring the investor the yield to maturity. CHANGES
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0301-8183254 Corporate Finance MBA-III ___________________________________________________ Introduction to Corporate Finance Finance: Finance is an art and science of managing money. It is concerned with resource allocation as well as resource management and investment. Simply finance deals with matters related to money and the markets. Functions of corporate finance: • Planning and analyzing • Acquiring • Utilization of funds All the above functions are performed to achieve the desired goals.
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of economic welfare of its shareholders. Maximization of economic welfare means maximization of wealth of its shareholders. Shareholder’s wealth maximization is reflected in the market value of the firm’s shares. Experts believe that‚ the goal of financial management is attained when it maximizes the market value of shares. There are two versions of the goals of financial management of the firm- Profit Maximization and Wealth Maximization. Profit maximization Profit maximization is based on the
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TIME VALUE OF MONEY Time value of money refers to an individual preference of a given amount of cash now rather than the same amount at some future time. The reasons why an individual would prefer cash now: i) Subjective preference for present consumption – one may prefer present consumption over future consumption of goods and services because of the urgency of present wants or the risk of not being in a position to enjoy future consumption. ii) Availability of investment opportunities –
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Chapter 2 The Time Value of Money and Net Present Value Solutions to Questions 2.1 to 2.43 appear in the text. 2.44 What is a perfect market? What were the assumptions made in this chapter that were not part of the perfect market scenario? Answer: A perfect market is one with no taxes‚ no transaction costs‚ no differences in opinion‚ and many buyers and sellers. In this chapter‚ we also are assuming no uncertainty and no inflation. 2.45 What is the difference between a bond and
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Fin 5170 Fall 2009 The exam will consist on multiple choices‚ and problems and may be an essay question. I will ask a maximum of two questions taken from the following material covered in class Chapter 1 Describe the concept of agency problems and different ways to ameliorate agency problems in a corporation Chapter 3 Example 3.7 (pages 65-66) Use the concept of arbitrage to explain the price of Security A in table 3.8‚ and Security B in table 3.9). Compute the risk premium of both securities.
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purchasing the item‚ then a lease is the best option. Leases can be classified as short term or long-term debt just depending on the amount of time contracted. The key considerations a company must consider when trying to decided whether to purchase or lease an asset is the net present value of purchasing versus leasing. The factors that affect the value are depreciation‚ taxes‚ length of
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THE TIME VALUE OF MONEY by Richard A. DeFusco‚ CFA‚ Dennis W. McLeavey‚ CFA‚ Jerald E. Pinto‚ CFA‚ and David E. Runkle‚ CFA LEARNING OUTCOMES INTRODUCTION 1 As individuals‚ we often face decisions that involve saving money for a future use‚ or borrowing money for current consumption. We then need to determine the amount we need to invest‚ if we are saving‚ or the cost of borrowing‚ if we are shopping for a loan. As investment analysts‚ much of our work also involves evaluating transactions
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– MSGP ESCP Europe (2011-2012) 1. Basic Tools in Financial Mathematics - Basic Tools in Financial Mathematics: • Compounding and future value (discrete and continuous compounded interest rates/rate of payments and receipts‚ which are spread over time. However‚ one Euro obtained (invested) today is not returns) • Discounting and present value (bond‚ stock and
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certificates in person D Very much like a department store in that stocks from different industries are traded 7. The principle behind time value of money is based on the fact that: A A sum of money in hand today is worth more than the same sum in the future B A sum of money in hand today is worth less than the same sum in the future C A sum of money in the future is worth less than the same sum in hand today D A & C 8. If an investor
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