Chapters 1-4

Front 1

Public Offering

Back 1

A security offering where all investors have the opportunity to acquire a portion of the financial claims being sold

Front 2

Private Placement

Back 2

A security offering limited to a small number of potential investors

Front 3

Venture Capitalist

Back 3

An investment firm (or individual investor) that provides money to business start-ups

Front 4

Primary Market

Back 4

A market in which securities are offered for the first time for sale to potential investors

Front 5

Secondary Market

Back 5

A market in which currently outstanding securities are traded

Front 6

Initial Public Offering (IPO)

Back 6

The first time a company issues its stock to the public

Front 7

Seasoned Equity Offering (SEO)

Back 7

The sale of additional stock by a company whose shares are already publicly traded

Front 8

Money Market

Back 8

All institutions and procedures that facilitate transactions for short-term instruments issued by borrowers with very high credit ratings

Front 9

Capital Market

Back 9

All institutions and procedures that facilitate transactions in long-term financial instruments

Front 10

Spot Market

Back 10

Cash market

Front 11

Futures Market

Back 11

Markets where you can buy or sell something at a future date

Front 12

Organized Security Exchange

Back 12

Formal organizations that facilitate the trading of securities

Front 13

Over-the-counter Market

Back 13

All security markets except organized exchanges. The money market is an over-the-counter market. Most corporate bonds also are traded in the over-the-counter market.

Front 14

Inflation Premium

Back 14

A premium to compensate for anticipated inflation that is equal to the price change expected to occur over the life of the bond or investment instrument

Front 15

Default-risk Premium

Back 15

The additional return required by investors to compensate them for the risk of default. It is calculated as the difference in rates between a U.S. treasury bond and a corporate bond of the same maturity and marketability.

Front 16

Maturity-risk Premium

Back 16

The additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuations on those securities caused by interest rate changes

Front 17

Liquidity-risk Premium

Back 17

The additional return required by investors for securities that cannot be quickly converted into cash at a reasonably predicted price

Front 18

Nominal (or quoted) Rate of Interest

Back 18

The interest rate paid on debt securities without an adjustment for any loss in purchasing power

Front 19

Real Rate of Interest

Back 19

The nominal (quoted) rate of interest less any loss in purchasing power of the dollar during the time of the investment

Front 20

Term Structure of Interest Rates

Back 20

The relationship between interest rates and the term to maturity, where the risk of default is held constant

Front 21

Yield to Maturity

Back 21

The rate of return a bondholder will receive if the bond is held to maturity

Front 22

Unbiased Expectations Theory

Back 22

The theory that the shape of the term structure of interest rates is determined by an investor's expectations about future interest rates

Front 23

Liquidity Preference Theory

Back 23

The theory that the shape of the term structure of interest rates is determined by an investor's additional required interest rate in compensation for additional risks

Front 24

Market Segmentation Theory

Back 24

The theory that the shape of the term structure of interest rates implies that the rate of interest for a particular maturity is determined solely by demand and supply for a given maturity. This rate is independent of the demand and supply for securities having different maturities.

Front 25

Accounting Book Value

Back 25

The value of an asset as shown on a firm's balance sheet. It represents the depreciated historical cost of the asset rather than its current market value or replacement cost.

Front 26

Debt

Back 26

Liabilities consisting of such sources as credit extended by suppliers or a loan from a bank

Front 27

Equity

Back 27

Stockholders' investment in the firm and the cumulative profits retained in the business up to the date of the balance sheet

Front 28

Preferred Stockholders

Back 28

Stockholders who have claims on the firm's income and assets after creditors, but before common stockholders

Front 29

Common Stockholders

Back 29

Investors who own the firm's common stock. Common stockholders are the residual owners of the firm.

Front 30

Par Value

Back 30

The arbitrary value a firm puts on each share of stock prior to its being offered for sale

Front 31

Paid-in-Capital

Back 31

The amount a company receives above par value from selling stock to investors

Front 32

Capital Gains

Back 32

Gains from selling any asset that is not part of the ordinary operations

Front 33

Liquidity

Back 33

The ability to convert an asset into cash quickly without a significant loss of its value

Front 34

Asset Management

Back 34

How efficiently management is using the firm's asset's to generate sales

Front 35

Return on Equity

Back 35

A firm's net income divided by its common book equity. This ratio is the accounting rate of return earned on the common stockholders' investment.

Front 36

Price/Earnings Ratio

Back 36

The price the market places on $1 of a firm's earnings. For example, if a firm has an earning per share of $2 and a stock price of $30 per share, its price/earnings ratio is 15.

Front 37

Price/Book Ratio

Back 37

The market value of a share of the firm's stock divided by the book value per share of the firm's reported equity in the balance sheet. Indicates the market price placed on $1 of capital that was invested by shareholders.

Front 38

Economic Value Added

Back 38

Measures a company's economic profits, as compared to its accounting profits, by including not only interest expense as a cost but also the shareholders' required rate of return on their investment.