Financial Terms and Roles
Alvaro Garcia Jr.
August 19, 2013
Dr. Rachel Ang
Finance – Individuals and businesses evaluate investments and raise capital to fund them. Understanding and having knowledge of finance will benefit both personal and professional life.
Efficient market – Investors respond to new information buying and selling their investments the speed with which investors act and the way that prices respond to the information determine the efficiency of the market.
Primary market – is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. The key feature of the primary market is that the firms selling securities actually receive the money raised.
Secondary market – is where ...view middle of the document...
Security – Security markets provide a link between the corporation and investors. The securities markets are another component of the financial marketplace.
Stock – Stock prices can react to information, good decisions will result in higher stock prices, and bad decisions will result in lower stock prices.
Bond – If the debt has a maturity longer than 10 years it is called a bond and is sold in the capital market. Bonds are generally described using fairly exotic terminology.
Capital – Decision-making process of planning and managing a firm’s long-term investments is called capital budgeting. The mix of long-term sources of funds used by a firm to finance its operations is called its capital structure. Working capital management involves management of the firm’s short term investments in assets and liabilities and ensuring that the firm has sufficient resources to maintain its day-to-day business operations.
Debt – Owner of a business is personally liable for the debts of that business borrowing.
Yield – Current Yield: Annual payout as a percentage of the current market price you’ll actually pay. Yield-to-Maturity: Composite rate of return off all payouts, coupon and capital gain (or loss). The capital gain or loss is the difference between par value and the price you actually pay.
Rate of return – Offering investors a higher expected rate of return on the riskier investments a higher expected rate of return is not always a higher realized rate of return.
Returns on investment – Individuals are risk-averse, which means that they prefer to get a certain return on their investment rather than an uncertain return.
Cash flow – Is the source of value determines an investment value and the amount of cash that can actually be taken out of the business over this same interval.