COMM 121 Chapter Notes - Chapter 6: Weighted Arithmetic Mean, Risk Premium, Net Present Value
3 Sep 2016
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Certificate showing borrower owes specific sum agrees to pay principle and make interest payments. Ir rate at which investor receives fixed cash flows every period. Yield to maturity: return received on entire investment. **bond price is inversely proportional to interest rates. **remember that bonds in north america have m=f=2 as such, you must divide both the coupon rate and ytm by 2 and multiply n by 2. No coupons, single cash payment at fixed date. Principle at maturity and interest payments at regular times throughout. Provide two sources of cash flows: dividends on a regular basis, shareholders receive share price when stock is sold. The value of stock pv of all future dividends = pv of next period"s share price + dividend. Dividend discount model: zero growth ddm no growth, constant dividend. Pvt = divt+1 r: constant growth ddm dividend grows at rate g.
