D367 Innovation in Finance - Set 5 - Part 3

Correct Answer: The return an investor will earn if the bond is held to maturity

YTM is the total return an investor can expect to earn by holding the bond until it matures, factoring in interest payments and the difference between the purchase price and par value.

Correct Answer: The proportion of a companys assets financed through debt

Leverage ratios show how much of a companys assets are funded by debt, indicating the level of financial risk.

Correct Answer: The ratio of a companys total debt to its total equity

The debt-to-equity ratio compares a companys total debt to its equity, providing insight into how leveraged a company is and its reliance on debt financing.

Correct Answer: The net value of a companys assets as recorded on its balance sheet

The book value represents the value of a companys assets minus its liabilities, as recorded on the balance sheet, and is often compared to market value.

Correct Answer: The stocks annual dividend as a percentage of its current stock price

Dividend yield measures how much a company pays out in dividends relative to its stock price, providing insight into the return from dividends alone.

Correct Answer: The risk-adjusted return of an investment

The Sharpe ratio assesses how well an investment compensates investors for the risk they take, by comparing excess returns to the investments volatility.

Correct Answer: The difference between a companys current assets and current liabilities

Working capital is a measure of a companys short-term liquidity, showing its ability to cover short-term obligations using current assets.

Correct Answer: The ratio of a companys current assets to its current liabilities

The current ratio is a liquidity ratio that measures a companys ability to pay off its short-term liabilities with its current assets, with higher ratios indicating better liquidity.

Correct Answer: The point at which total revenue equals total expenses

The break-even point indicates the level of sales at which a business covers all its fixed and variable costs, resulting in zero profit but no loss.

Correct Answer: The risk that a company will not be able to convert assets into cash quickly

Liquidity risk refers to the risk that a company or investor may be unable to quickly sell an asset or convert it into cash without a significant loss in value.