Finance 370 Wk 1

Financial Terms and Roles

FIN/370

January 15, 2014

Financial Terms and Roles

Finance- The study of how people and businesses evaluate investments and raise capital to fund them.

Efficient market- a market in which all the available information is fully incorporated into securities prices and the returns investors will earn on their investments cannot be predicted. Ensures fair trading opportunities.

Primary market- a market in which new securities are bought and sold for the first time. Firms use money from new securities to help finance their businesses.

Secondary market- financial market where previously issued securities are bought and sold. The issuing firm does not benefit from the securities being transferred from one investor to another, main benefit is liquidity.

Risk- The probability that the return on an investment will be lower than expected return. Basis for evaluating investments; if the risk is high, the expected return is also high.

Security- A financing or investment instrument issued by a company or government agency that denotes an ownership interest and provides evidence of a debt a right to share in the earnings of the issuer or a right in the distribution of a property.

Stock- A share of a company held by an individual or group

Bond- A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.

Capital- Cash or goods used to generate income either by investing in a business or a different income property.

Debt- Money that has been borrowed and must be repaid. Can be used as a financial source to generate capital.

Yield- Yield is the dividend yield, obtained by dividing the firm's annual cash dividend by the closing price of the stock that day.

Rate of return- The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. 

Return on investment- A performance measure used to evaluate the efficiency of an...