Fundamentals Of Finance - Midterm 3

Front 1

Computed as a periodic return minus the average return

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Deviations

Front 2

Derived by summing the squared deviations and dividing by n-1

Back 2

Variance

Front 3

Square root of the variance

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Standard Deviation

Front 4

Measures the risk per unit of return

Back 4

Coefficient of Variation

Front 5

Expected or Forecasted return and risk

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Ex-Ante

Front 6

Market in which prices adjust quickly after the arrival of new information and the price change reflects the economic value of the information, on average.

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Efficient market

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Prices appear to fluctuate randomly over time, driven by the random arrival of new information.

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Random Walk

Front 8

Market in which prices reflect all public and private knowledge, including past and current information.

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Strong-form efficient market

Front 9

Market in which all public information, both current and past, is reflected in asset prices.

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Semi-strong form efficient market

Front 10

Market in which prices reflect all past information.

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Weak-form efficient market

Front 11

Study graphs of past price movements, volume, etc., to try to predict future prices.

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Charists (technicians)

Front 12

Any combination of financial assets or investments.

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Portfolio

Front 13

Occurs when we invest in several different assets rather than just a single one.

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Diversification

Front 14

Two time series tend to move in opposite directions.

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Negative correlation

Front 15

Two time series tend to move in conjunction with each other.

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Positive correlation

Front 16

Statistical concept that relates movements in one set of returns to movements in another set over time.

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Correlation

Front 17

Risk that can be diversified away.

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Unsystematic Risk

Front 18

Risk that cannot be eliminated through diversification.

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Systematic Risk (Market Risk)

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Portfolio that contains all risky assets.

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Market Portfolio

Front 20

States that expected return on an asset depends on its level of systematic risk.

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Capital Asset Pricing Model (CAPM)

Front 21

Measure of an asset's systematic risk.

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Beta

Front 22

Financial technique that involves dividing various financial statment numbers into one another

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ratio analysis

Front 23

Used to evaluate a firm's performance over time.

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Trend or time series analysis

Front 24

Different firms are compared at the same point in time.

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Cross-Sectional Analysis

Front 25

Compares a firm's ratios against average ratios for other companies in the industry.

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Industry comparative analysis

Front 26

Indicate the ability of the firm to meet short-term obligations as they come due.

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Liquidity ratios

Front 27

Dollar amount of a firm's current assets minus current liabilities.

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Net working capital

Front 28

Indicate extent to which assets are used to support sales.

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Asset management ratios

Front 29

Indicates the extent to which borrowed funds are used to finance assets, as well as the ability of a firm to meet its debt payment obligations.

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Financial leverage ratios

Front 30

Periodic bond principal repayments to a trustee

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Sinking fund payments

Front 31

Periodic bond principal repayments to a trustee

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Sinking fund payments

Front 32

Indicate the firm's ability to generate returns on its sales, assets, and equity

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Profitability ratios

Front 33

Indicate the value of a firm in the market place relative to financial statement values.

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Market value ratios

Front 34

Technique of breaking down return on total assets and return on equity into their component parts.

Back 34

Du Pont analysis

Front 35

Financial plans utilized in sales forecasts

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Budgets

Front 36

Used by managers for financial planning to estimate the firm's operating profits at different levels of unit sales.

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Cost-volume-profit analysis

Front 37

Used to estimate how many units of product must be sold in order for the firm to break even or have a zero profit.

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Break-even analysis

Front 38

Contribution of each unit sold that goes toward paying fixed costs.

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Contribution margin

Front 39

Measures the sensitivity of operating income to changes in the level of output.

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Degree of operating leverage (DOL)

Front 40

Time between ordering materials and collecting cash from receivables.

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Operating cycle

Front 41

Time between a firm's paying its suppliers for inventory and collecting cash from customers on a sale of the finished product.

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Cash conversion cycle

Front 42

Tool the treasurer uses to forecast future cash flows and estimate future short-term borrowing needs.

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Cash budget

Front 43

Demand for cash needed to conduct day-to-day operations.

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Transactions motive

Front 44

Holding funds to meet unexpected demands.

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Precautionary motives

Front 45

Holding funds to take advantage of unusual cash discounts for needed materials.

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Speculative motives

Front 46

The delay in the payment system between when funds are sent by a payer and credited to the payee's bank account and deducted from the payer's bank account.

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Float

Front 47

Payments are sent to a P.O. box and processed by a bank to reduce collection float.

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Lockbox

Front 48

Regular (typically monthly) deductions by a vendor from a customer's checking account.

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Pre-authorized checks

Front 49

An arrangement between a bank and firm to transfer sufficient funds to a disbursement account to cover the day's checks presented to the bank for payment.

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Zero-balance account

Front 50

The use of communications and computer systems to convey ordering, invoice, and payment information between suppliers and customers.

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Electronic Data Interchange

Front 51

Ethical quality upon which one can base a judgement about a customer's willingness to pay.

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Character

Front 52

Ability to pay bills.

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Capacity

Front 53

Adequacy of owners' equity relative to existing liabilities.

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Capital

Front 54

Whether assets are available to provide security for the potential credit.

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Collateral

Front 55

Current economic climate and state of the business cycle.

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Conditions

Front 56

Source of credit information about business firms and individuals.

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Credit bureaus

Front 57

Credit extended on purchases to a firm's customers.

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Trade credit