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Terms in this set (16)
The underwriters might have been enabled to sell additional shares after the IPO in what is called an "over-allotment option". This is also known as a horseshoe. The over-allotment optionis one was for the investment banks to destabilize the stock price after the IPO.
The yield on equity securities is often quoted as a spread to the Treasury Curve. This is a credit spread. Credit spreads show yield differentials for equity securities with different credit ratings. If credit spreads are widening this is an indication that the economy is weakening. If credit spreads are narrowing this is an indication that the economy is stronger.
To amortize is to structure a loan such that one makes an irregular stream of payments at the same time each period where the amount owed falls to zero immediately after the last payment.
Transparency refers to the clarity of the information disclosed. Generally, the more transparency the less efficient the market.
Two types of risk for a stock investor and not a bond investor are interest rate risk and credit risk.
Unemployment is the most prominent leading economic indicator. Businesses find it difficult to hire and retrain workers and find it difficult to lay-off employees. As an economic downturn worsens business might be forced to increase employment. This might come at a business cycle bottom and after monetary and fiscal policy as been introduced into the economy.
The Cash Cycle refers to the ups and downs on economic activity as a result of the normal course of business. Businesses might over-produce goods and there might be excess inventory in the economy. It takes time to work off the excess inventory and the economy will improve when inventories are low and businesses work to increase inventories by hiring more workers.
Venture capitalists usually invest for a defined stage of the firm's life, the late stage. Some venture capital firms might hold on to common or preferred shares after the IPO but many venture capital firms will sell a significant number of shares at the IPO.
When an investment bank helps firms sell stock to the public this is a primary market transaction.
Yields on straight bonds are usually lower than yields on municipal bonds because municipal bond interest is taxed at a higher tax rate than interest on straight bonds.
Market capitalization is defined as the market price per share of common stockmultiplied times the number of common shares outstanding. Market Capitalization represents the value investors place on a firm's equity. Book value of equity represents the value the firm's accountants place on a firm's equity.
The yield on debt securities is often quoted as a spread to the Treasury Curve. This is a credit spread. Credit spreads show yield differentials for debt securities with different credit ratings. If credit spreads are narrowing this is an indication that the economy is weakening. If credit spreads are wideninging this is an indication that the economy is stronger.
Always use the periodic rate in your time value of money calculations.
An annuity is a series of lump-sum cash flows expected to be received at regular time intervals.
An asset is not liquid if it can only be turned into cash over a long period of time without losing value.
An asset is liquid if it can be turned into cash quickly without losing value.
An inverted yield curve exists when short-term interest rates are higher than longer-term interest rates. This is usually caused by the Fed restricting liquidity in the capital markets.
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