Financial Terms Essay
Novemeber 18, 2013
Dr. Dee Barton
Financial Terms and Roles
Finance is the study of how people and businesses evaluate investments and raise capital to fund them (Titman, Keown, Martin, 2011, Pg. 4). There are four principles of Finance. They are Money has a Time Value, There is a Risk-Return Tradeoff, Cash Flows are the source of value, and Market Prices Reflect Information.
Efficient Market is one in which the flow of relevant information in regard to investment options is easily accessed and reliable ("What Is An Efficient Market?", 2013). Anyone who is involved in trade is able to make use of the information to assess the past performance of the …show more content…
A bond is a debt security that has a maturity of longer than 10 years and is sold in the capital market. They pay a fixed interest rate. This means that the interest the owner of the bond receives never changes over its lifetime (Titman, Keown, Martin, 2011, pg. 27).
Capital is the money used to fund investments made by investors and business (Titman, Keown, Martin, 2011, pg. 20).
Debt is money an individual or business has borrowed and must be repaid. Debts include items like bank loans and bonds (Titman, Keown, Martin, 2011, pg. 5).
Yield is income generated by an asset on an annual basis and expressed as a percentage of the asset’s purchase or market price. In stock investments, the yield is the total dividend for the last year as a proportion of the share price. In bonds, the yield is the same as the coupon rate ("Yield", 2013).
Rate of Return
Rate of Return is a percentage of the total amount invested. It is usually, although not always, calculated annually ("Rate Of Return", 2013).
Return on Investment
Return on investment is a profitability measure that evaluates the performance of a business by dividing net profit by net worth ("Return On Investment (roi)", 2013). It is not the same as profit. It deals with the money invested and the return you realize on that money based on the net profit of the business.
Cash Flow is the amount of cash that can actually be