Financial Terms and Roles

Financial Terms and Roles

Fin 370

February 29, 2012

Professor Alan Gorlick

Financial Terms and Roles

Finance has many key terms that are necessary to understand in order to gather the proper information to complete the related paperwork. The following will be a brief definition of bond, capital, cash flow, debt, efficient market, finance, primary market, rate of return, return on investment, risk, secondary market, security, stock, and yield.

• Bond

◊ “A long-term (10-year or more) promissory note issued by a borrower, promising to pay the owner of the security a predetermined amount of interest each year (Titman, Keown, & Martin, 2011, p. 27).”

• Capital

◊ “Cash or goods used to generate income either by investing in a business or a different income property ("Investorwords.com", 2012).”

• Cash Flow

◊ “A revenue or expense stream that changes as cash account over a given period. Cash in flows usually arise from one of three activities-financing, operations, or investing although this also occurs as a result of donations or gifts in the case of personal finance ("Investopedia", 2012).”

• Debt

◊ “Money that has been borrowed and must be repaid. This includes such things as bank loans and bonds (Titman, Keown, & Martin, 2011, p. 5).”

• Efficient Market

◊ “A market in which security prices reflect all available information and adjust instantly to any new information. If the security markets are truly efficient, it is not possible for an investor consistently to outperform stock market averages such as the S&P 500 except by acquiring more risky securities ("Investopedia", 2012).”

• Finance

◊ “The study of how people and businesses evaluate investments and raise capital to fund them (Titman, Keown, & Martin, 2011, p. 5).”

• Primary Market

◊ “A part of the financial market where new secutiry issues are initially bought and sold...