# Summary: Fundamentals Of Corporate Finance | 9780273753469 | Jonathan B Berk, et al

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## Read the summary and the most important questions on Fundamentals of Corporate Finance | 9780273753469 | Jonathan B. Berk; Peter M. DeMarzo; Jarrad V. T. Harford

• ### 2.4 The Income Statement

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• #### How do you calculate the Leverage Ratio? (also Interest coverage ratio (TIE))

Operating Income devided by Interest Expense

• ### 5.1 Interest Rate Quotes and Adjustments

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• #### When you buy a car with borrowed money, of what is the interest the price?

The price to be able to convert money paid in the future to a car right now
• #### Why is it important to convert interest rates to the same time unit before comparison?

Because you cannot compare a daily interest rate with a yearly interest rate
• #### What is a different name for the effective anual rate?

The annual percentage yield
• #### What is the effective annual rate?

The effective interest paid in a year time unit
• #### How do you calculate the equivalent interet rate at a different period length? E.g. EAR of r to monthly, or 5 yearly?

(1+r)^n - 1
So for monthly n=1/12
For 5 yearly n=5
• #### What does the annual percentage rate do with compounding?

It doesn't take it into account
• #### What is the actual effective interest rate of a 6% APR compounded monthly?

6/12 = 0.5 monthly interest
1.005^12 - 1 = 6.17% after 12 month
• #### Can the APR be used as a discount rate?

No, you have to take compounding into account
• ### 5.2 Application: Discount Rates and Loans

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