– Debt securities are issued when a company (or government) wishes to borrow money from the public on a long-term basis. – Bonds are issued by the government. – Debentures are secured and issued by a corporation. – Notes are unsecured corporate securities. – Investor has claims to a fixed sequence of cash flows and …
Debt Debt providers have a contractual right to cash flows generated by real assets It is an obligation to pay debt holders No voting rights for debt holders Equity Equity holders have a residual claim to cash flows generated by real assets It is not an obligation to pay equity holders Voting rights for …
In an amortised loan, the amount borrowed is the present value of all the repayments. Try the following questions: Question 1: You borrow $7 500 to buy a car and agree to repay the loan by way of equal monthly repayments over 5 years. The current interest rate is 12% per annum, compounded monthly. What …
The nominal interest rate (NIR), is the quoted or stated interest rate (usually per annum) ignoring how frequently interest is compounded. The effective annual interest rate (EFF) is the equivalent interest rate when interest is compounded once per year. EFF rate will need to be calculated when you’re given an annual interest rate (cost) on …
There are generally 5 elements that you will need to know in order to calculate either of them: 1. present value (PV)2. future value (FV) 3. years to maturity (n) 4. discount rate (r) 5. annuity payment (PMT) There are 3 ways to calculate the PV of an annuity. You can use the timeline, formula or …
Annuity are amount that is the same and they occur over the same time interval. There are 5 types of annuity: 1. Ordinary annuities An ordinary annuity is a series of constant cash flows that occur at the end of each period for some fixed number of periods commencing at the end of the first …
Present Value can be understood from the concept of time value of money. What is time value of money? – Receiving $1 in the future is worth less than $1 now – The opportunity cost of $1 in the future is the interest we could have earned on $1 if received earlier Present value example: …
Future Value can be understood from the concept of time value of money. What is time value of money? – Receiving $1 today is worth more than $1 in the future – The opportunity cost of $1 in the future is the interest we could have earned on $1 if received earlier Future value example: …
Assume you make a deposit into a bank account: SIMPLE INTEREST If the Bank pays you simple interest the interest payment each year will be the same and will be the interest rate times the initial amount Simple interest refers to interest earned only on the original capital investment amount. FV = PV(1 + r …
Financial markets bring together the buyers and sellers of debt and equity securities. Money markets involve the trading of short-term debt securities. Capital markets involve the trading of long-term debt securities. Primary markets involve the original sale of securities. Secondary markets involve the continual buying and selling of already issued securities. Having issues with your …