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A noted earlier, bonds are long-term debt instruments used by businesses and government to raise large sums of money, typically from a diverse group of lenders. • Most bonds pay interest semiannually at a stated coupon interest rate, have an initial maturity of 10 to 30 years, and have a par value of $1,000 that must be repaid at maturity

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Risk and Return: The Capital Asset Pricing Model (CAPM) • If you notice in the last slide, a good part of a portfolio’s risk (the standard deviation of returns) can be eliminated simply by holding a lot of stocks. • The risk you can’t get rid of by adding stocks (systematic) cannot be eliminated through diversification because that variabil...

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Compounding Interest More Frequently Than Annually (cont.) • A General Equation for Compounding More Frequently than Annually – Recalculate the example for the Fred Moreno example assuming (1) semiannual compounding and (2) quarterly compounding.

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Cash Planning: Cash Budgets • The cash budget or cash forecast is a statement of the firm’s planned inflows and outflows of cash. • It is used to estimate short-term cash requirements with particular attention to anticipated cash surpluses and shortfalls. • Surpluses must be invested and deficits must be funded. • The cash budget is a usefu...

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Ratio Analysis (cont.) • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios – Return on Total Assets (ROA)

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Major Areas & Opportunities in Finance: Managerial Finance (cont.) • Increasing globalization has complicated the financial management function by requiring them to be proficient in managing cash flows in different currencies and protecting against the risks inherent in international transactions. • Changing economic and regulatory conditi...

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Translation Exposure -- Relates to the change in accounting income and balance sheet statements caused by changes in exchange rates. Transactions Exposure -- Relates to settling a particular transaction at one exchange rate when the obligation was originally recorded at another. Economic Exposure -- Involves changes in expected future cash flow...

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The shareholders of Company A will experience a decrease in earnings per share because of the acquisition [$3.90 post-merger EPS versus $4.00 pre-merger EPS]. The shareholders of Company B will experience an increase in earnings per share because of the acquisition [.703125 x $4.10 = $2.88 post-merger EPS versus $2.50 pre-merger EPS].

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Company C has a convertible debenture outstanding that provides an 8% coupon (interest is paid semiannually) and continues exactly 20 years until final maturity. A similar nonconvertible bond will currently provide a 5% semiannual yield to maturity. What is the straight bond value of Company C’s convertible bond? V = $40 (PVIFA5%, 20x2) + $1,000 ...

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These term loans usually have final maturities in excess of seven years. These companies do not have compensating balances to generate additional revenue and usually have a prepayment penalty. Loans must yield a return commensurate with the risks and costs involved in making the loan. As such, the rate is typically higher than what a bank would ...

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