Vocab

Michelle Cadena C.
Finances II
Chapter #6
Homework

Topic: Vocabulary of Bonds

• Consol: A bond which never reaches maturity. A type of bond that has an infinite life but is not issued inthe U.S. capital markets.
• Growth rate: A growth rate measures the percentage increase in the value of a variety of markets, companies, or operations. Year-over-year change, expressed as a percentage.The amount by which a variable increases over a given period of time as a percentage of its previous value. For example, a 3% growth rate in GDP for a year means that the value of an economy is 103%of the value of the previous year.
• Dividend valuation model: Mathematical formula used generally by stockbrokers to put a price on a firm's shares, based on the firm's potential dividend level.Mathematical formula used generally by stockbrokers to determine the selling price of a firm's stock (shares). Based on the discounted value of the expected future dividend amounts, it is used usually tospot firms that are undervalued by the stock market but have potential for high returns.
• No growth model: Is unrealistic, it provides a convenient benchmark and vastly simplifies our computations.• Constant growth model: A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in oneyear, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends.
• Return: The change in thevalue of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.
• Ex ante (expected) rate of return: The expected return of a portfolio based onthe expected returns of its component assets and their weights.
• Ex post (realized) rate of return: Holding period return. A calculation of the actual, as opposed to estimated, average rate of...