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Finance Exam 1 Key Terms
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Terms in this set (95)
Define Annuity
A series of payments or receipts
Define Annuity Due
An annuity that pays at the beginning of each period
Define Compounding
Figuring out the future value of money you will invest
Define Compounding Problem
When the periods, payments, and interest must be adjusted for non-annual time value of money problems
Define Deferred Annuity
An annuity that starts sometime in the future
Define Discount Rate
The rate at which money is discounted or compounded
Define Discounting
Figuring out the present value of money you will receive in the future
Define Effective Yield
A rate that includes non-annual compounding
=(1+ stated rate/m)^m-1
Define Future Value
How much spending power money has at a point in the future
Define FV
Future value
Define FVIF
Future value investment factor = PV * (1+r)^n
Define FVIVA
Future Value Investment Factor of an Annuity
Define i/Yr
Interest rate per period
Define Lump Sum
A single amount of money
Define N
Number of periods
Define Ordinary Annuity
An annuity that pays at the end of each period
Define Perpetuity
An annuity that lasts forever
Define PMT
Payment, the annuity payment
Define Present value
How much spending power money has today
Define PV
Present value
Define PVIF
Present Value Investment Factor=FV/(1+r)^n
Define PVIFA
Present Value Investment factor of an annuity
Define Required Rate of Return
Another name for the discount rate
Define Time Value of Money
The process of valuing money at specific points in time
Define Uneven Cash Flows
A series of cash flows that are not equal
Define Affirmative Covenant
A bond covenant that requires the firm to do something.
Define Bond
A bond covenant that requires the firm to do something.
Define Bond Indeture
The legal document detailing a bond
Define Bond Ratings
A rating assigned to a firm to measure the profitability of default by a company like S&P or Moody's
Define Convertible Bonds
Bonds that can be converted into equity at the owner's request
Define Convexity
The curvature of the price-yield relationship not captures by duration
Define Coupon Rate
Another name for coupon yield
Define Coupon Yield
The rate the bond issuer promises to pay its investors
Define Covenants
Rules set forth in the bond indenture to protect bond investors
Define Current Yield
An approximation of the current yield that does not incorporate the time value of money=Annual Coupon
Define Debenture
A bond that is not secured by collateral or guarantees
Define Debt Capital
Firm financings that appears in the debt section of the balance sheet
Define Duration
A measure of the interest rate sensitivity of a bond
Define Eurobonds
Bonds issued in a country not in that country's currency
Define Face Value
The lump sum amount paid on a bond's maturity date
Define Fixed-Income Securities
The lump sum amount paid on a bond's maturity date
Define Foreign Bonds
Bonds issued in a domestic market by a foreign firm, but in the domestic currency
Define Inverse Price-Yield Relationship
When market yields go up, bond prices go down and vice versa
Define Investment Grade
Bonds rated BBB or above
Define Junk Bonds
Speculative bonds rated BB or below
Define Macaulay Duration
A specific type of duration, a measure of interest rate sensitivity
Define Maturity Date
The date the bond issuers pays the face value and the bond expires
Define Modified Duration
An adjusted version of Macaulay Duration, which makes it a little more accurate
Define Mortgage Bonds
Bonds that are secured by real property
Define Muni
Short for municipal bond
Define Municipal Bond
A bond issued by a local municipality such as a city or county
Define Negative Covenant
A bond covenant that prohibits the firm from doing something
Define Par VAlue
Another name for face value
Define Promised Yield
Another name for yield to maturity
Define Security Valuation
The process of valuing assets
Define Subordinated Debenture
A lower-ranked bond that is not secured by collateral or guarantees
Define Trade at Discount
When a bond's market prices is less than its face value
Define Trade at Premium
When a bond's market prices is greater than its face value
Define Treasury Bill
A short-term bond issued by the US Federal Government
Define Treasury Bond
A bond issued by the US Federal Gov
Define YTM
Yield to Maturity, the required rate of return of a bond
Define Zero Coupon Bond
Another name for zeros
Define Zeros
Bonds that do not pay interest payments
Define 52 Week High
The highest price of a stock over the last year
Define 52 Week Low
The lowest price of a stock over the last year
Define American Stock Exchange (AMEX)
A physical trading floor and a computer network where stocks are bought and sold
Define Cap Rate
In real estate, the denominator of the Gordon Model (i.e. the discount rate of a perpetuity- Capitalization Rate = Yearly Income/Total Value)
Define Common Stock
A type of equity which usually has voting rights
Define Constant Growth
The assumption that dividends or free cash flows will grow forever at a constant rate
Define Corporate Governance
The structure, rules, and regulations for owners and managers of a firm
Define Cumulative Dividends
A preferred stock characteristic where if a firm fails to pay preferred dividends on year, it must catch up and pay all preferred stock dividends before any common stock dividends can be paid
Define Day's Closing Price
The day's closing stock price as reported in the financial press
Define Day's High
That day's highest trading stock price as reported in he financial press
Define Day's Low
That day's lowest trading stock price as reported in the financial press
Define Dividend
The most recent dividend paid by the firm. Dividends are usually stated on a per-share basis
Define Dividend Yield
Dividend Payment/Current Stock Price
Define Dividend Yield Percent
The dividend yield stated as a percent in the financial press
Define Dividends in arrears
A preferred stock characteristic where common stock dividends cannot be paid until the preferred stock dividends are paid
Define Equity
Often another name for stock
Define Fixed-Return Securities
Another name for fixed-income securities. These are typically debt instruments, such as a bond
Define Gordon Growth Model
An economic model to compute the value of stock assuming the stock will have constant dividend growth
Define Hybrid Security
A security that has characteristics like stock and bonds
Define Intrinsic Value
The value of an asset computed with an economic model. Based on the cash flows generated from the security
Define Multi-Stage Growth Model
An economic model to compute the value of equity assuming multiple growth rates. This is in comparison to "Constant Growth"
Define Nasdaq
A computer network where stocks are bought and sold- it is the second largest stock exchange in the world
Define Net Day's Change
That day's change in price as reported in the financial press
Define New York Stock Exchange
A physical trading floor and a computer network where stocks are bought and sold. Largest.
Define PE Ration
The price of the stock divided by its earnings
Define Preferred STock
A type of equity viewed as a hybrid security because some of its characteristics are debt like
Define Residual Claim
An asset (such as stock) which earns its return after fixed-income assets (such as bonds) are paid off
Define Round Lots Traded
How many round lots of the stock traded that day as reported in the financial press
Define Stock
Proof of equity ownership in a firm. Gives the holder the right to vote on matters of the company and claim an asset to the company
Define Ticker Symbol
A one to four letter code identifying a company on its exchange
Define Two-Stage Model
An economic model to compute the value of equity assuming two growth rates
Define Variable-Return Securities
Securities that are not fixed-income securities
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