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Summary Fundamentals of Corporate Finance

- Jonathan B Berk, et al
ISBN-10 0273753460 ISBN-13 9780273753469
216 Flashcards & Notes
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A snapshot of the summary - Fundamentals of Corporate Finance Author: Jonathan B Berk Peter M DeMarzo Jarrad V T Harford ISBN: 9780273753469

  • 2 Introduction to Financial Statement Analysis

  • 2.4 The Income Statement

  • How do you calculate the Leverage Ratio? (also Interest coverage ratio (TIE))
    Operating Income devided by Interest Expense
  • 5 Interest Rates

  • 5.1 Interest Rate Quotes and Adjustments

  • 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

  • What is a amortizing loan?
    A loan with equal payments that comprise interest and paying back part of the loan
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