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Fin571-Corporate Finance

In: Business and Management

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Week 4 Study Guide: Business Valuation

Readings and Key Terms

• Ch. 5 of Fundamentals of Corporate Finance

o Time value of money o Time zero o Future value (fv) o Principal o Simple interest o Compounding o Compound interest o Discounting o Discount rate o Present value (pv) o Rule of 72

• Ch. 6

o Annuity o Perpetuity o Ordinary annuity o Present value of an annuity (PVA) o Amortization o Future value of an annuity (FVA) o Annuity due o Annual percentage rate (APR)

• Ch. 7

o Total holding period return o Expected return o Variance (σ2) o Standard deviation (σ) o Normal distribution o Portfolio o Diversification o Coefficient of variation (CV) o Covariance o Diversifiable and nondiversifiable risk o Market portfolio o Market risk o Beta (β) o Capital asset pricing model (CAPM) o Security market line (SML)

• Ch. 8

o Coupon payments o Face value or par value o Coupon rate o Opportunity cost o Par value bonds o Discount bonds o Premium bonds o Yield to maturity o Effective annual rate (EAY) o Realized yield o Interest rate risk o Yield curve

• Ch. 9

o Bid price o Offer (ask) price o Dividend yield o Common stock o Preferred stock

Content Overview

• Time value of money

o Single sums

• Calculate present value. • Calculate periods. • Calculate interest and discount rate. • Calculate future value. • Interpret and make decisions from the calculations. • Understand the relationship between time, rate, and value.

o Annuities

• Identify various forms of annuities. • Calculate present

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