fin exam two terms
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Created by:
LauraConklin on October 14, 2011
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39 terms
Terms | Definitions |
|---|---|
 compound interest | interest paid on an investment during the first period is added to the principal. |
| annuity | a series of equal dollar payments made for a specified number of years |
| annuity due | an annuity in which the payments occur at the beginning of each period |
| perpetuity | an annuity with an infinite life |
| amortized loan | loan that is paid off in equal periodic payments |
| risk | potential variability in future cash flows |
| standard deviation | statistical measure of the spread of a probability distribution calculated by squaring the difference between each outcome and its expected value, weighting each value by its probability, summing over all possible outcomes, and taking the square root of this sum. |
| company unique risk | unsystematic risk: related to an investment return that can be eliminated through diversification |
| market risk | systematic risk: related to an investment return that cannot be eliminated through diversification |
| holding period returns | the return an investor would receive from holding a security for a designated period of time. |
| beta | relationship between an investments returns and the markets returns. this is a measure of the investments non-diversifiable risk. |
| portfolio beta | relationship between a portfolios returns and the market returns. measure of the portfolios non-diversifiable risk. |
| asset allocation | identifying and selecting the asset classes appropriate for a specific investment portfolio and determining the proportions of those assets within the portfolio |
| required rate of return | minimum rate of return required necessary to attract an investor to purchase or hold a security |
| risk premium | additional return expected for assuming risk |
| capital asset pricing model (CAPM) | equation stating that the expected rate of return on a project is a function of the risk-free rate, the investments systematic risk, and the expected risk premium for the market portfolio of all risky securities. |
| security market line | return line that reflects the attitudes of investors regarding the minimum acceptable return for a given level of systematic rick associated with a security |
| bond | long term (10 year or more) promissory note issued by the borrower promising to pay the owner of the security a predetermined, fixed amount of interest each year. |
| debenture | any unsecured long term debt |
| subordinated debenture | a debenture that is subordinate to other debentures in terms of its payments in case of insolvency |
| mortgage bond | bond secured by a lien on real property |
| eurobond | bond issued in a country different from the one in which the currency of the bond is denominated |
| zero coupon bond | bond issued at a substantial discount from its $1000 face value and that pays little or no interest |
| junk bond | any bond rated BB or lower |
| convertible bond | debt security that can be converted into a firms stock at a prespecified price |
| par value | on the face of the bond the stated amount that the firm is to repay upon the maturity date |
| coupon interest rate | the interest rate contractually owed on a bond as a percent of its par value |
| maturity | length of time until the bond issuer returns the par value to the bondholder and terminates the bond |
| call provision | provision that entitles the corporation to repurchase its preferred stock from investors at stated prices over specified periods |
| indenture | legal agreement between the firm issuing bonds and the bond trustee who represents the bondholders, providing the specific terms of the loan agreement |
| book value | value of an asset as shown on the firms balance sheet. represents the historical cost of the asset rather than its current market value or replacement cost |
| liquidation value | dollar sum that could be realized if an asset were sold |
| market value | value observed in the marketplace |
| intrinsic value | present value of an assets expected future cash flows. this value is the amount the investor considers to be fair value, given the amount, timing and riskiness of future cash flows |
| yield to maturity | rate of return a bondholder will receive if the bond is held to maturity |
| current yield | the ratio f the bonds annual interest payment to its market price |
| interest rate risk | variability in a bonds value caused by changing interest rates. |
| discount bond | a bond that sells at a discount or below par value |
| premium bond | bond that is selling above par value |
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