Investments By Bodie, Kane, Marcus - 7/e - Ch. 2

Front 1

Asked price

Back 1

The price at which a dealer will sell a security.

Front 2

Banker's acceptance

Back 2

A money market asset consisting of an order to a bank by a customer to pay a sum of money at a future date.

Front 3

Bid price

Back 3

The price at which a dealer is willing to purchase a security.

Front 4

Bid-asked spread

Back 4

The difference between a dealer's bid and asked price.

Front 5

Call option

Back 5

The right to buy an asset at a specified exercise price on or before a specified expiration date.

Front 6

Capital gains

Back 6

The amount by which the sale price of a security exceeds the purchase price.

Front 7

Capital markets

Back 7

Includes longer-term, relatively riskier securities.

Front 8

Certificate of deposit

Back 8

A bank time deposit.

Front 9

Commercial paper

Back 9

Short-term unsecured debt issued by large corporations.

Front 10

Contingent claim

Back 10

Claim whose value is directly dependent on or is contingent on the value of some underlying assets.

Front 11

Derivative asset/contingent claim

Back 11

Securities providing payoffs that depend on or are contingent on the values of other assets such as commodity prices, bond and stock prices, or market index values. Examples are futures and options.

Front 12

Equities

Back 12

Ownership shares in a firm.

Front 13

Equivalent taxable yield

Back 13

The pretax yield on a taxable bond providing an after-tax yield equal to the rate on a tax-exempt municipal bond.

Front 14

Eurodollars

Back 14

Dollar-denominated deposits at foreign banks or foreign branches of American banks.

Front 15

Exercise or strike price

Back 15

Price set for calling (buying) an asset or putting (selling) an asset.

Front 16

Federal funds

Back 16

Funds in a bank's reserve account.

Front 17

Futures contract

Back 17

Obliges traders to purchase or sell an asset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase. The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (marking to market).

Front 18

Index fund

Back 18

A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.

Front 19

Limited liability

Back 19

The fact that shareholders have no personal liability to the creditors of the corporation in the event of bankruptcy.

Front 20

London Interbank Offered Rate (LIBOR)

Back 20

Rate that most creditworthy banks charge one another for large loans of Eurodollars in the London market.

Front 21

Market-value-weighted index

Back 21

An index of a group of securities computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value.

Front 22

Money market

Back 22

Includes short-term, highly liquid, and relatively low-risk debt instruments.

Front 23

Municipal bonds

Back 23

Tax-exempt bonds issued by state and local governments, generally to finance capital improvement projects. General obligation bonds are backed by the general taxing power of the issuer. Revenue bonds are backed by the proceeds from the project or agency they are issued to finance.

Front 24

Preferred stock

Back 24

Nonvoting shares in a corporation, paying a fixed or variable stream of dividends.

Front 25

Price-weighted average

Back 25

Weighted average with weights proportional to security prices rather than total capitalization.

Front 26

Price-earnings ratio

Back 26

The ratio of a stock's price to its earnings per share. Also referred to as the P/E multiple.

Front 27

Put option

Back 27

The right to sell an asset at a specified exercise price on or before a specified expiration date.

Front 28

Repurchase agreements (repos)

Back 28

Short-term, often overnight, sales of government securities with an agreement to repurchase the securities at a slightly higher price. A reverse repo is a purchase with an agreement to resell at a specified price on a future date.

Front 29

Residual claim

Back 29

Refers to the fact that shareholders are at the bottom of the list of claimants to assets of a corporation in the event of failure or bankruptcy.

Front 30

Treasury bond or note

Back 30

Debt obligations of the federal government that make semiannual coupon payments and are issued at or near par value.

Front 31

Yield to maturity

Back 31

A measure of the average rate of return that will be earned on a bond if held to maturity.