New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

FIN 3080 Prof Xin Li Week 6 Notes

by: Brady Zuver

FIN 3080 Prof Xin Li Week 6 Notes FIN 3080C

Marketplace > University of Cincinnati > Finance > FIN 3080C > FIN 3080 Prof Xin Li Week 6 Notes
Brady Zuver
GPA 3.94

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

This section of notes finishes covering chapter 6 including Effective Earnings Rate and APR, along with Types of loans and Amortization of loans. This set of notes also starts to discuss chapter 7 ...
Business Finance
Xin Li
Class Notes
Loans, bonds
25 ?




Popular in Business Finance

Popular in Finance

This 3 page Class Notes was uploaded by Brady Zuver on Thursday September 29, 2016. The Class Notes belongs to FIN 3080C at University of Cincinnati taught by Xin Li in Fall 2016. Since its upload, it has received 7 views. For similar materials see Business Finance in Finance at University of Cincinnati.


Reviews for FIN 3080 Prof Xin Li Week 6 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/29/16
Fin 3080 Prof Xin Li Week 6 Notes Ch 6 Continued 1. Compounding Rates: The Effects of Compounding a. Effective annual Rates (EAR) i. The rate you will earn ii. EAR = [1+(Quoted Rate/m)] -1m 1. M= number of times interest is compounded over the year 2. Quoted Rate= APR iii. Annual Percentage Rate (APR) 1. Interest Rates per period times number of periods per year a. Need to calculate EAR to see what is actually being paid iv. Continuous Compounding 1. EAR= e -1 a. Q=quoted rate b. Upper limit of EAR with continuous compounding 2. Loan Types and Loan Amortization a. Pure Loan Discounts i. Simplest form of loan ii. Borrower receives money today and repays a single lump sum in the future 1. Ex: If you borrow $100 at 10% for one year, at the end of the year you will pay $100 (1+.1) = $110 b. Interest-Only Loans i. The borrower pays interest each period and repay the entire principal at some point in the future 1. Interest is paid at the end of each year, the final year the interest plus the initial principal is paid a. Ex: 3 year loan of $1000 at 10%, First two years, only the interest is paid which is $100 each year i. The third year the $100 interest is paid, plus the initial $1000 principal ii. If there is only one period, Interest-only and Pure loan discount are the same c. Amortized Loan *** i. Lender may require borrower to repay parts of the loan amount over time ii. Providing the loan be paid off by making regular principal reductions 1. Approach 1 a. Pay the interest each period, plus some fixed amount i. EX on slide 41 on Chapter 6 slides 2. Approach 2 a. Have the borrower make a single, fixed payment each period i. Majority of loans work this way ii. Ex on slides 43-45 in Chapter 6 slides Chapter 7 Interest Rates and Bonds 1. Bonds and Bond Valuation a. A bond is normally an interest only loan, where the borrower will pay interest every period. b. Important Definitions Relating to Bonds i. Coupon: The stated interest payment made on a bond 1. Ex: 12% rate on $1000 means coupon is $120 ii. Face Value (or Par Value): The principal amount of a bond that is repaid at the end of the term 1. If you use the same example from above, you would get $1000 back at the end of the term iii. Coupon Rate: The annual coupon divided by the face value of a bond 1. Coupon rate above $120/$1000= 12% iv. Maturity: The number of years until the face value is paid is called the bond’s time to maturity 1. Corporate bonds often have maturities of 30 years c. Bond Values and Yields i. Yield to Maturity (YTM) (Sometimes called bond’s yield) 1. The interest rate required in the market on a bond 2. Interest rates change in the marketplace, but cash flows from a bond stay the same a. This causes value of a bond to fluctuate b. As interest rates increase, the present value of a bond declines, as they decrease, the present value rises ii. Value of a bond 1. By hand a. Value = Present value of coupons + Present value of face amount b. PV of coupons= C* [1-1/(1+r) ]/r t c. PV of Face Amount= F/(1+r) 2. Financial Calc a. Insert Years (N), Rate (I/Y), Coupon (PMT) and Face Value (FV) then compute for present value iii. When Coupon Rate=YTM then the bind sells for face value iv. When Market interest rate is higher than the coupon rate, then people are willing to pay less than the $1000 face value 1. This is called a Discount Bond 2. Bond prices and interest rates move in opposite directions a. Interest rate increase, bond price decrease b. Interest rate decrease, bond price increase 2. Interest Rate Risk a. The risk that arises for bond owners from fluctuating interest rates i. 2 Properties 1. Generally, (all other things held equal) the longer the time to maturity, the greater the interest rate risk. 2. All things equal, The lower the coupon rate, the greater the rate risk ii.


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.