Finance

Front 1

what is the goal of maximization?

Back 1

shareholder utility

Front 2

agency theory

Back 2

the stockholders appoint the managers to act in there interest so there is a separtion betweween ownership and management

Front 3

perquisite consumption

Back 3

things that are fun but not necessarily in the interest of the company
ex. an un needed corporate jet

Front 4

shirking

Back 4

generally being a slacker

Front 5

project selection

Back 5

choosing whether you want a safe low reurn or a high, risky expected return

Front 6

management resistance to takeover bids

Back 6

when the management resists the takeover bid of another company because they feel that their jobs are in jeopardy

Front 7

appropriate compensation packet

Back 7

-give CEOs more ownership
-grant stock options

Front 8

inside director

Back 8

has a cozy relationship with the CEO, they play golf together, etc, and they are less subjective

Front 9

outside relationship

Back 9

no relationship with the CEO, much more objective with the CEO

Front 10

financial markey

Back 10

the place where financial assets trade

Front 11

financial asset

Back 11

a claim against some other issuer(a bond)

Front 12

purposes of financial markets

Back 12

to facilitate the acquisition of and investment of money, and to bring tohetjer those who have capital and those hwo need it.
- to estavlish markey proces and rates of return. Access to reliable proces allows investors to keep track of the market vlaues of their assets. Market prices tell managers how well investors think they are preforming

Front 13

money markets

Back 13

short term fiancial markets
characteristics: short maturity, low risk and liquid

Front 14

3 major money markey instruments

Back 14

tbills certificates of deposit(issud by banks and thrifts), and commercial paper(issued by corportations)

Front 15

capital markets, definitiion characeristics and examples

Back 15

long term financial markets
characteristicsO maturity of one year or more, higher risk, possible illiuidity

common securities:bonds, preferred stock, common stocks and convertible securities

Front 16

primary market

Back 16

where new securities are bought and sold

Front 17

secondary market

Back 17

where investors trade existing securities

Front 18

registered exchange

Back 18

physical marketplace where traders gather to exchange securities (NYSE, AMEX)

Front 19

Over the counter

Back 19

firms not listed on a regisered exchange can still have their shares traded, electronically links brokers and dealers

Front 20

an annual report consists of

Back 20

managements overveiw,balance sheet, income shtatement, cash flow statement, footnotes, and sometimes next tears statments

Front 21

book value

Back 21

identical to stockholder equity on the balance sheet

Front 22

markey value

Back 22

the aggregate value of the firms shares. Computed by the # of shares outstanding x the price per share

Front 23

nominal rate

Back 23

also called the quoted or stated rate. it is the stated % of interest per year

Front 24

effective rate

Back 24

what you money actually earns

Front 25

probability distribution

Back 25

the table of probabilities and outcomes

Front 26

variance

Back 26

the average squared difference between the actual return and the average return "sigma squared"

Front 27

standard deviation of x

Back 27

"sigma". The positive square root of the variance

Front 28

diversification

Back 28

one way to reduce the risk of a portfolio. Owning all kinds of stocks in different areas so that losses are offset

Front 29

systematic risk

Back 29

risk that cannot be diversified away

Front 30

Beta

Back 30

the mesaure of systematic risk that is closely related to the covariance of the asset.
beta=covariance/variance

Front 31

risk premium

Back 31

the amount of return above the riskfree rate that investors demand for holding risky stocks

Front 32

weak form efficient

Back 32

the stock price impounds all informtion in the stocks past prices, technical anaysis and charting cant be used to make abnormal returns.

Front 33

semi strong form efficiency

Back 33

the stock prive already impounds all public information so you cant use public information to make abnormal returns

Front 34

strong form efficiency

Back 34

when the stock price already impounds all public and private information, so you cant use public or private information to make abnormal returns. basically no information of any kind can be used to significantly beat the market

Front 35

what percent of professional money makers lose to the market in a year?

Back 35

2/3

Front 36

golden parachute

Back 36

outside company comes in to take over the company and the management resists.

Front 37

par value

Back 37

the amount tha tis promised to the bondholder when the bond matures

Front 38

coupon rate

Back 38

the rate that the bond pays

Front 39

maturity

Back 39

how long befor ethe issuing company pays the bondholder

Front 40

market value

Back 40

the cost you would pay today if you bough th ebond or security

Front 41

yield to maturity

Back 41

the bonds required rate of return. The discournt rate which equates the present value of all coupon payments and redemption at par value to the bonds market value.

Front 42

leverage

Back 42

the amoud of debt used relative to assets

Front 43

pecking order

Back 43

order in which firms tend to get money in order to participate in projects they undertake. They exhaust the 1st step and then go to other steps.
a)internal equity-retained earnings, dont have to sell stocks and bonds to investors and set up accounts because it costs too much money
b) Debt- issue next becuase if they do it costs less to issue a bond than it does to issue equity
c) Sell equity-do it last because the investment bankfees are the highest

Front 44

bidder

Back 44

the acquiring firm

Front 45

target

Back 45

the firm to be acquired

Front 46

supermajority position

Back 46

where 80% of the target firms shareholders must approve the merger

Front 47

stagggered board

Back 47

terms of the members of the BOD expire at different times

Front 48

Standstill agreement

Back 48

agree to limit holdings in the target firm then the management offers to make a sgnificant cash payment to the bidder

Front 49

Greenmail

Back 49

also called a target repurchase: reach an agreement where the management buys a certain amount of stock from the bidder at a premium

Front 50

poison pill

Back 50

the management makes the target company indigestible, they put more voting poer in the hands of the friends of the target company

Front 51

sell crown jewels

Back 51

sells at the price that the bidder really wants

Front 52

white knight

Back 52

agree to be taken over by a friendlier firm

Front 53

buy back stock

Back 53

buy back their stock in order to keep the voting power in their own hands

Front 54

take on debt

Back 54

to avoid a takeover by issue bonds to bondholders, to make the company look really bad and like its in financial distress

Front 55

pacman defense

Back 55

only used if there is one potential bidder

Front 56

raise antitrust challenge

Back 56

managment goes to regulators and pleads that the takeover be blocked

Front 57

efficient capital market

Back 57

where market securiy prices reflect available informations so there is no reason to believe that the current price is too high or too low

Front 58

efficient market hypothesis

Back 58

actual capital markets are efficient
the market is made efficient by competition among investors

Front 59

risk premium

Back 59

the reward for bearing risk in an investment

Front 60

cumulative voting

Back 60

procedure where the shareholder may cast all of the votes for one memeber of the board of directors

Front 61

straight voting

Back 61

where the directrs elect one person at a time the shareholder may cast votes for each member of the board of director.
-freezes out minority shares

Front 62

proxy

Back 62

the grant of authority of the shareholder by allowing someoe else to vote their shares