...TRUE/FALSE 1. If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03. ANS: T DIF: 2 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Applicative 2. If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the account value will double in approximately 14 years. ANS: T DIF: 2 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Compounding MSC: Applicative 3. The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years. ANS: F DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Analytic 4. The future value of $1 saved today is $1/(1 + r). ANS: F DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Analytical 5. The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum. ANS: T DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Interpretive 6. The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment. ANS: F DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP:...
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...Econoshit Chap 4 Terms | Definitions | Prosperity | The capacity/ availability to satisfy needs by means of products or services | Production | The values added to the process of goods from natural resources. | Production factors | Resources used for production 1. Labor 2. Natural resources 3. Capital | Gross Domestic Products (GDP) | Total production of goods and services within the borders of a country | Comparison of GDP per capita3 steps | 1. Calculate the GDP per capita ( GDP/population) 2. Convert to a common currency 3. Adjust for the differences in the purchasing power of the currency per country | Economic growth | Growth in production | Welfare/well-being | The sense of contentment or satisfaction people in a society have | Human Development Index (HDI) | A metric to determine the welfare of a population | 3 ways to measure production | 1. Production approach: Adding up the total added value of the goods and services of a country 2. Income approach: Adding up all the remuneration for the resource owners in that country 3. Expenditure approach: Adding up all the expenditure of the country | Gross National Income (GNI) | Total production + Total Income | Production factors of capital | 1. Durable capital goods (>1 year) 2. Floating capital goods (<1 year) 3. Consumables (Added during the processes) | Production factors of labor | 1. The size of population 2. Participation rate | Causes of rises in wage...
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...chance to get 2) Opportunity cost of capital: Definition: opportunity cost of capital is the expected rate of return offered by equivalent investments in financial markets Net present value (investment rule) Definition: NPV of an investment is the current market value of its cash flows * accept project if its NPV is positive Arbitrage pricing An arbitrage is an investment opportunity such that: * It requires no positive investment today but yields positive payoffs in the future (type 1) * Yields positive payoff today without requiring positive payment in the future (type 2) Present value Valuing cash flows The future value of a cash flow of C dollars in T years when invested at a rate-of-return r is: FV(C) = $C * (1+ r)T We can deduce of this the present value of an amount of money received in T years: PV(C) = $C(1+r)T=$C*[discount factor at r, maturity T] Discount factor at r, maturity T = 1(1+r)T Project evaluation {Cfi, I ϵ [0;T]}: NPV = ∑ Cfi(1+r)i * Positive (<0) NPV projects increases (decrease) the value of a firm by the amount of the NPV * NPV rule: undertake all projects that has a positive NPV Shortcuts to Special Cash Flows Recall: PV (cash flows) = 1T Cfi(1+r)i COMMENCE A 1 OU 0??? Perpetuities: Definition: constant stream of cash flows, C, that occur every unit period and continues forever (such as coupon bonds) In that case we have: PV = Cr Growing perpetuities Definition: stream of cash flows,...
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...Money, according to our definition, A. has to be backed by something valuable, such as gold or silver. B. does not have to be generally accepted in payment of obligations. C. can include credit. D. has to be issued by government. E. none of the above Money, according to our definition, A. need not be in common use. B. is generally accepted to pay debt. C. has to be issued by government. D. does not need to be useful to pay off obligations. E. needs to be backed up by gold. Which of the following is not a function of money A. Unit of Account B. Medium of Exchange (Means of Payment) C. Store of Value D. Provider of Peace and Security E. Standard of Deferred Payments M1 money in our society includes A vault cash of commercial banks B. cash held by private citizens C. deposits of commercial banks in the Federal Reserve Bank D. saving account deposits of private citizens and businesses in banking institutions E. U.S. Government bonds The M1 definition of money in our society includes A. bonds held by the public B. checking account deposits C. cash in the vaults of banks D. deposits of banks at the Fed e. savings accounts Nobody likes high interest rates. One governmental official says that the government can keep interest rates down by putting lots of money into circulation. What do you think of this idea? A. It will work. More money in circulation will immediately lead to lower interest rates. B. It won't work. More...
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...with 10 years to maturity and $1,000 face value (assume annual coupons/compounding): • Bond A: Coupon rate = 10% • Bond B: Coupon rate = 0% (discount paper) Yield Bond 8% A B $1,134.20 (+13.4%) $463.19 (+20%) 10% $1,000 $385.54 12% 887.00 (-11.3%) $321.97 (-16.5%) FIN300 (Matt Marcinkowski, Fall '13) DURATION • Now, consider two bonds with 10 percent coupon rate and $1,000 face value (assume annual coupons/compounding): • Bond C: Time to maturity = 5 years • Bond D: Time to maturity = 25 years Yield Bond 8% C D $1,079.85 (+8%) $1,213.50 (+21.4%) 10% $1,000 $1,000 12% $927.90 (-7.2%) $843.14 (-15.7%) FIN300 (Matt Marcinkowski, Fall '13) DURATION • We have observed the following: • The price of Bond A is less sensitive (in relative terms) to interest rate changes than the price of Bond B. • This is due to the fact that Bond A has a higher coupon rate (10%) than Bond B (0%) • We have also observed that: • The price of Bond C is less sensitive (in relative terms) to interest rate changes than the price of Bond D. • This is due to the fact that Bond D has a longer time to maturity than Bond C. FIN300 (Matt Marcinkowski, Fall '13) DURATION • Bond prices are more sensitive in relative terms to interest rate changes if the coupon rate is lower and if the time to maturity is longer. • To compare interest rate sensitivity of bonds with different coupon rates and times to maturity we need to compute duration. FIN300 (Matt Marcinkowski, Fall '13) DURATION ...
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...Control Risk Definition: A speculative (possibility of a positive or negative outcome; not a “pure risk”) uncertainty associated with relying on the quality controls of outsourced supplier. Application: There is a risk that Bulldog Trailers Ltd may obtain inferior quality “extras” from suppliers , should the suppliers change their strategy in future and decide reduce their input costs to survive possible recessionary times. (NB: Made those words bold to show my understanding of how risk relates to an uncertainty) Bulldog Trailers Ltd has no quality control over the “extras” sourced from external suppliers. This is because the “extras” require specialised production technology that the company does not have. It will be difficult for Bulldog Trailers Ltd to verify that the “extras” have been built using consistent standards and specifications, despite the fact that the suppliers are “selected on the basis of quality”. Reputational Risk Definition: A speculative uncertainty that is associated with the public’s perception of a company because of quality controls around a product, service delivery and the overall customer experience. Application: There is a risk that Bulldog Trailers Ltd may have a tainted reputation as the result of the possibility of clients not being satisfied with the quality of the “extras”. The clients may spread the word about the poor quality of the “extras” and return the trailers for a full refund. Third party risk Definition: A pure (outcome...
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...The definition of consumer expenditure is the amount of money spent by households in an economy. The definition of investment is the spending by firms on capital good such as new machines etc. Finally the definition of interest rates is the proportion of a loan that is charged as interest to the borrower, normally expressed as an annual percentage. In the UK the interest rates are set by the Monetary Policy Committee and are usually used in order to influence levels of aggregate demand. Primarily, you must understand that lowering the rate of interest will make it cheaper for people to borrow as well as make it cheaper to pay back existing loans. As a result, firms may use this money that they have saved to spend on upgrading the quality of their capital goods. Also, increases in consumer expenditure will lead to an increase in aggregate demand because consumer expenditure is a component of of aggregate demand. However, if consumers are not confident in the future they may not be willing to part with their money in fear of the fact that they may have to pay a large percentage on top of the amount borrowed in interest. This will lead to a low level of consumer expenditure because they would just be loosing their money. Also, they may have the mindset that if they wait it will eventually return to a reasonable level. In terms of investment this is very similar because it is just the same concept but applied to firms as oppose to consumers, if confidence within firms...
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...merchant negotiate on a price in June for settlement in September • Chicago Board of Trade 1848 • Yodoya rice futures in 1650 • Forwards, Futures, Options, Swaps 2 Derivatives - Definitions • Forwards – involves a contract initiated at one time, performance in accordance with the terms of the contract occurs at a subsequent future time • Futures – type of forward contract with standardized and closely specified contract terms – – – – Traded in organized exchange Standardized, specific quantity, delivery date, mechanism Performance guaranteed by clearinghouse Margins – good faith deposit with the exchange • Option – the right to purchase underlying good at a specific price until a specific date – Calls and Puts • Swaps – Agreement between two or more parties to exchange sequence of cash flows over a period in the future 3 Derivatives - Applications • Price risk elimination • Speculation • Market completeness • Information efficiency • Trading efficiency 4 Derivatives - Markets • Commodity Derivatives: underlying asset a commodity – Agricultural products like wheat, soybeans, rapeseed, cotton – Precious metals like gold, silver – Energy products like crude oil, natural gas, coal, electricity • Financial Derivatives – Equities, interest rates, exchange rates – Volatility Levels – Cash settlement • Regulatory – SEBI • Exchanges – NSE, BSE, MCX 5 Derivatives – Market...
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...allow the reader to better understand the report. This report complied by myself owes a significant amount of gratitude to Benjamin Drummer (CPA, JD, Accounting Instructor) and Vicki Yamasaki (CPA, CRO, One America Insurance) for taking time out their busy schedules to help with the compilation of information. TABLE OF CONTENTS Executive Summary……………………………………………………….. 5 Introduction………………………………………………………………. 6 Background………………………………………………………………. 6 Discussion Gross Profit………………………………………………………. 6 Definitions Description Figure 1 Operating Income (Loss)…………………………………………. 7 Definitions Description Figure 2 Income from Continuing Operations before Income Tax…………. 8 Definitions Description Figure 3 Income from Continuing Operations……………………………… 10 Definitions Description Figure 4 Net Income (Loss)………………………………………………… 11 Definitions Description Figure 5 Earning Per Common Share……………………………………….. 12 Definitions Description Figure 6 Conclusion…………………………………………………………………. 13 Appendix A………………………………………………………………… 14 Appendix B………………………………………………………………… 16 References…………………………………………………………………. 17 EXECUTIVE SUMMARY Financial statements are the most frequently read part of any...
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...7-9 Definitions of Commonly Used Activity Ratios |Activity Ratios |Numerator |Denominator | |Inventory turnover |Cost of goods sold |Average inventory | |Days of inventory on hand (DOH) |Number of days in period |Inventory turnover | |Receivables turnover |Revenue |Average receivables | |Days of sales outstanding (DSO) |Number of days in period |Receivables turnover | |Payables turnover |Purchases |Average trade payables | |Number of days of payables |Number of days in period |Payables turnover | |Working capital turnover |Revenue |Average working capital | |Fixed asset turnover |Revenue |Average net fixed assets | |Total asset turnover |Revenue |Average total assets | Exhibit 7-10 Definitions of...
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...___________%, then FNMA will lose all its equity! Asset-Liability Management 2 A Look at FNMA’s Income Statement For the Period December 31, 1994 - December 31, 1995 (in Billion $) Interest Income: Mortgage Portfolio Investments Total Interest Expense: Short Term Long-Term Total Net Interest Income Other Income Other Expenses Income Before Taxes (In Billion $) 18 3 21 In percent 7.85 % 6.155 7.56 4 14 18 3 1 1 3 5.855 7.0575 6.7525 0.8075 Investment Spread Asset-Liability Management 3 Funds-Gap Analysis Focus is on evaluating the impact of changes in interest-rates on net interestincome. The analysis is “maturity based.” Hence, it can be considered as the worst assetliability management tool. There is one side benefit in learning the Funds-Gap Analysis. It is a nice tool to demonstrate how changes in market yields cut through the balance-sheet and affects the income statement. Specifically, for example, it can show us the source of $3 billion accounting profit FNMA reported for the year ending 1995. To undertake the analysis, the first step is to partition the balance sheet into four quadrants: ________________________________________________________ | Rate Sensitive Assets | Rate Sensitive Liabilities (RSA) | (RSL) | | Fixed Rate Assets | Fixed Rate Liabilities (FRA) | (FRL) Asset-Liability...
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...explain, in your own words what those definitions mean, and then thoroughly analyze each of the following changes in the market for loanable funds to answer the these questions Use the diagrams below, resizing them as necessary, to illustrate your analysis in explaining what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries). My Definitions: Deficit – The deficit is the money that the government owes but can’t pay with the revenue from taxes. a. The government reduces the size of its deficit to zero If the government reduces the deficit to zero, the demand for loanable funds will also decrease which is represented by D1 and D2. The reduction in the deficit is represented by Q1 and Q3 which is equal to the decrease in the demand for loanable funds. The decrease in the deficit decreases the interest rates which in turn increases private investment spending from Q3 to Q2 and decreases private savings from Q1 to Q2. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero If consumers decide to start saving more the supply of loanable funds supply will increase as shown below. The increase in supply lowers the interest rates which in turn increase private investment spending as shown by Q1to Q2. c. At any given interest rate, businesses become very optimistic about...
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...Individual assignment week 2 Describe the following terms in your own words. Gross domestic product (GDP) Definition: The monetary value of all the finished (final) goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. My own words: A countries value of products within the nation that is measured within a specific amount of time, to gauge the standard of living. Real GDP definition: An inflation-adjustment measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP". My own words: It’s like the gross domestic product but with more accurate figures. Nominal GDP definition: A gross domestic product (GDP) figure that has not been adjusted for inflation. Also known as "current dollar GDP" or "chained dollar GDP." My own words: When the inflation figure is not accounted for, making the GDP look better than it is in reality. Unemployment rate definition: The percentage of the total labor force that is unemployed but actively seeking employment and willing to work. My own words: The unemployment rate is an indicator of the labor work force as a whole that is not working but actively seeking employment. Inflation rate definition: The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling...
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...Definition of 'Hot Money'1. Money that flows regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding countries into higher interest rates countries by investors looking to make the highest return. These financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the balance of payments. 2. Stolen money that is marked so as as to be traceable. | | Investopedia explains 'Hot Money'1. Banks usually attract "hot money" by offering relatively short-term certificates of deposit that have above-average interest rates. As soon as the institution reduces interest rates or another institution offers higher rates, investors with "hot money" withdraw their funds and move them to another institution with higher rates. 2. Hot money might have been involved in a robbery and tracked through dye marks on each bill or through recorded serial numbers. | Definition of 'Foreign Exchange Intervention'A monetary policy tool in which a central bank takes an active participatory role in influencing the monetary funds transfer rate of the national currency. Central banks, especially those in developing countries, intervene in the foreign exchange market in order to build reserves, stabilize the exchange rate and to correct misalignments. The success of foreign exchange intervention depends on how the central bank sterilizes the...
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...V. Siva Prasad and* K.Lakshmana Rao* Abstract The valuation and Reporting of financial instruments receive special attention in the course of Financial Reporting. The paper discusses the initial measurement, subsequent recognition of gain and losses on the financial instruments and their balance sheet presentation as prescribed by Accounting Standards of The institute of chartered Accountants of India (AS 30, 31 and 32), UK’s reporting standard and the International Reporting Standards. ____________________________ *Research Scholars, Department of Commerce and Management Studies, Andhra University, Vsiakhapatnam-530003. Definitions of Financial Instruments A Financial Instrument can involve very simple things like cash, or something far more complicated, such as a derivative. AS 31 define Financial Instrument as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The Financial Reporting Exposure Draft (FRED) 30 of the UK and the International Accounting Standard (IAS) 32 similarly define a financial instrument as any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. A financial asset is any asset that is: a) Cash; b) A contractual right to receive cash or another...
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