BU473 Midterm: BU473 Midterm Cheat Sheet
Document Summary
Investment: current commitment that will compensate in future for time committed, inflation, uncertainty in funds. Inflation: if inflation diminishes future payments, investors demand an interest rate higher than the time value of money. Uncertainty: if uncertainty exists within future payments, investor demands interest rate higher than the time value of money plus inflation rate to provide risk premium to cover risk. Some important considerations in the investment decision process: Globalization, technological advances, role of institutional investors, market efficiency, corporate governance, tax. Arithmetic mean return: captures typical return in a single period. Geometric mean return: reflects compound, cumulative returns over more than one period. If rates of return are the same for all years, am = gm. If rates of return are not same for all years, am > gm. Osc short form prospectus reduces pricing risk for underwriters and issuers. Private placements have lower issuing cost than public offering.
