When talking about bonds (especially when buying them) you have to take into consideration the yield of the bond. Simply put, a bond’s yield shows the relationship of the investment and the income. For the sake of comparability yield is always shown as an annualized (yearly) percentage. Current YieldAlthough we may know the coupon rate … Continue reading Bonds: Calculating Yield
Category: Investing and Financial Planning
Bonds: An Introduction
A bond is a type of debt security, where the issuer owes the holders a debt and is obligated to pay the coupon rate and face value back, together with other obligations, stated in the terms. This is the technical definition of bonds. Here we will help you familiarize yourself with the terms used in … Continue reading Bonds: An Introduction
Calculating Different Types of Annuities
Definition An annuity is a series of payments required to be made or received over time at regular intervals. The most common payment intervals are yearly (once a year), semi-annually (twice a year), quarterly (four times a year), and monthly (once a month). Some examples of annuities: Mortgages, Car payments, Rent, Pension fund payments, Insurance … Continue reading Calculating Different Types of Annuities
The Power of Compounding – Interest Examples
Time exerts the greatest influence on your investment portfolio than any other force. Through the power of compounding, a small amount of money over time can grow into a substantial sum. Compounding is an investor’s best friend. Investments can increase in value over time – and the longer the time frame, the greater the value. … Continue reading The Power of Compounding – Interest Examples
Perpetuities – Definition & Calculation
Perpetuity Definition: A perpetuity is an annuity that provides payments indefinitely. Since this type of annuity is unending, its sum or future value cannot be calculated. Examples of perpetuity: Local governments set aside monies so that funds will be available on a regular basis for cultural activities. A children’s charity club set up a fund … Continue reading Perpetuities – Definition & Calculation
Standard Deviation — Definition & Calculation
Definition: Standard deviation is a measure of how far apart the data are from the average of the data. If all the observations are close to their average then the standard deviation will be small. How to calculate standard deviation:Suppose that an investor has $600 to invest and is considering investing all of it in … Continue reading Standard Deviation — Definition & Calculation
Information Asymmetry
An economy is said to be characterized by information asymmetry when some parties to business transactions may have an information advantage over others. Types of information asymmetry The first is adverse selection. Adverse selection occurs because some persons, such as managers and other insiders know more about the current condition and future prospects of the … Continue reading Information Asymmetry
Bond Valuation — Calculation
Bonds can be purchased at any time. To value the bond, the procedures differ depending on whether the bond is purchased on the date interest is regularly paid (interest date) or whether it is purchased “between interest dates”. How to calculate the Purchase Price of a Bond on an Interest Date Formula to be used: … Continue reading Bond Valuation — Calculation
Capital Budgeting – Procedure & Decision Process
Capital budgeting is the process by which the financial manager decides whether to invest in specific capital projects or assets. In some situations, the process may entail in acquiring assets that are completely new to the firm. In other situations, it may mean replacing an existing obsolete asset to maintain efficiency. During the capital budgeting … Continue reading Capital Budgeting – Procedure & Decision Process
Cost of Capital WACC — Formula & Calculation
The cost of capital is the expected return that is required on investments to compensate you for the required risk. It represents the discount rate that should be used for capital budgeting calculations. The cost of capital is generally calculated on a weighted average basis (WACC). It is alternatively referred to as the opportunity cost … Continue reading Cost of Capital WACC — Formula & Calculation