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57

Call

date, 230

option, 285, 355-360

premium, 232 Callable bond, 205, 230-232 Cap

interest rate, 257 payment, 257 Capital Asset Pricing Model, 349-355 Capital budgeting, 152-156, 278 Capital gain or loss realized, 239 unrealized, 239 Capitahzation, 185 Capitahzed cost, 277-279 Certificate of deposit, 51, 283 Closed end credit, 250 Collateralized mortgage obligations,

284-285 Common stock, 208, 236-237 Comparison date, 43 Compound discount definition of, 13 mediod, 273-274 Compound interest definition of, 7-10 mediod, 271-272 Constant percentage mediod, 273-274 Constant ratio mediod, 263-265 Consumer Credit Protection Act, 248 Contingent annuity, 58 Contingent claims theory, 371 Continuous annuity, 107-109, 119-121 Conversion period, 17 Convertible securities bond, 206

preferred stock, 207-208 Convexity, 321-322 Cost, 239

Coupon

accmed, 220

bond, 206

rate, 209-210

rate modified, 210 Credit

card, 52

closed end, 250

open end, 249

risk, 303 Cumulative preferred stock, 207 Current

rate, 295

value, 11

yield, 211

DebenUire bond, 206

Declining balance mediod, 273-274

Declining index system, 150

Decreasing annuity, 112

Dedicated bond portfolio, 326-327

Dedication, 326

Deferred annuity, 67

Delivery date, 286

Depletion

charge, 275

definition of, 275 Depreciating asset, 270 Depreciation

charge, 271

definition of, 271

mediods, 270-277 Derivative instrument, 287 Descartes rule of signs, 134, 395 Deterministic approach, 1 Direct ratio mediod, 265-268 Discount

accumulation of, 215

amount of, 12

bond, 213-219

compound, 13

definition of, 12, 16

effective rate of, 12-17

factor, 10

force of, 24

function, 10

nominal rate of, 18-20

rate, 298

simple, 15-16 Discounted cash flow analysis, 129-133 Discounted value, 11 Discounting, 11 Dividend

definition of, 207

discount model, 236-237 Dollar-weighted rates of interest,

145-146 Drop payment, 72 Duration

definition of, 315-319

Macaulay, 318

modified, 318

Early withdrawal penalty, 52-53 Effective rate

of discount, 12-17

of interest, 4-5 Embedded option, 358-359 Equated time, 45, 315-316 Equation of value, 42-44 Equivalency, 13-14 Ex ante rale, 295 Ex post rate, 295 Exact simple interest, 38 Exercise price, 285, 355-360 Expectations theory, 310 Expected present value, 304 Expenses, 129, 228 Exposure

associated with i, 141

associated with 6, 162

Bankers Rule, 39 Base amount

definition of, 210 formula, 212 Basic formula, 211 Basis point, 298 Bearer bond, 205 Binomial

lattice, 363-364 model, 361-365 Black-Scholes Option Pricing Model,

359-360, 410-411 Bond

accumulation, 205 adjustment, 206 amortization schedule, 215-219 bearer, 205 callable, 205, 230-232 convertible, 206 coupon, 206 debenture, 206 definition of, 205 discount, 213-219 high-risk, 206, 303 high-yield, 303 income, 206 junk, 206 mortgage, 206 perpetual, 205 , 236 premium, 213-219 price, 208-213 registered, 205 salesmans mediod, 227 serial, 206, 232-234 table, 225 unregistered, 205 yield, 210, 225-230 zero coupon, 205 Book value asset, 239 bond, 214 British consols, 205



call parity, 358 option, 285, 355-360

Random walk model, 361-365 Real estate mortgage, 255-260 Real rate of interest, 299 Redemption

date, 205

value, 209 Registered bond, 205 Regulation Z, 252 Reinvestment rate, 136-140, 228 Replicating transaction, 362 Retrospective mediod, 167 Return rate, 157-158 Reverse annuity mortgage, 259 Risk

credit, 303

free rate, 303

market, 303, 351

market price of, 354

premium, 303, 351

reflection of, 297, 302-308

systematic risk, 351

unique, 350

unsystematic, 350 Rule of

72-46

78-265, 274-275

Scenario testing, 365-368 Semi-dieoretical mediod, 222-223 Serial bond, 206, 232-234 Service, 175 Setdement date

date, 255

rate, 315 Shared appreciation mortgage, 258 Short

sale, 279

transaction, 279 Simple discount, 15-16 Simple interest

annuity, 84-87

Bankers Rule, 39

definition of, 5-7

exact, 38

ordinary, 38-39 Simulation, 341 Sinking fund

definition of, 175-181

mediod of depreciation, 271-272

method of repaying a loan, 166

schedule, 177-179 Specified rate, 315 Spot

price, 286

rate, 310-312 Spread, 298 Starting value, 48, 76 Step-rate amounts of principal,

192-195 Stochastic approach

approach, 1, 336

mediod, 368 Stoodleys formula, 34 Straight line mediod

bond amortization, 219

depreciation, 272-273 Striking price, 285, 355-360 Snipped Treasury, 311 Successive approximation, 48, 76-78 Sum of die years digits mediod,

274-275 Swap

currency, 287

definition of, 287

interest rate, 287 Systematic risk, 351

Taxation, 128-129, 314 Term

annuity, 58 bond, 205

structure of interest rates, 309

to maturity, 315 Theoretical mediod, 221 Time

diagram, 43

preference, 295

value of money, 42

weighted rates of interest, 145-149 Treasury

bill, 52, 207

bond, 207

bond Series E, 205

note, 207

stripped, 311 Trudi in lending, 248-254

Unearned finance charge, 251 Unique risk, 350 Uniqueness, 133-136 Unit period, 249 United States Rule, 252-253 Unregistered bond, 205 Unsystematic risk, 350 Usury, 295

Valuation of securities, 238-240 Variable annuity, 115 Varying annuity, 109-121, 401 Varying interest, 28-29, 80-82 Volatility, 317

Warrant, 286

Wraparound mortgage, 258 Writing

down, 215

up, 215

measurement, 2

payment, 58 Periodic charge, 277 Periodic rent, 105 Perpetual bond, 205, 236 Perpetuity

basic, 69-71

varying, 113 Point, 255

Portfolio method, 149-152 Practical method, 222 Preferred stock

convertible, 207-208

cumulative, 207

definition of, 207-208, 236

participating, 207 Preftinding cash flows, 156 Premium

amortization of, 215

bond, 213-219

discount formula, 212 Present value

definition of, 10-12

mediod, 239-240

net, 130 Preset mediod, 367 Price

bond, 208-213

flat, 220

ftiture, 286

market, 220

spot, 286 Prime rate, 298 Principal, 2

Probabilistic mediod, 367 Productivity of capital, 295 Project

financing rate, 157-158

mixed, 157

pure financing, 157

pure investment, 157

return rate, 157-158 Prospective mediod, 167 Put



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