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Risk – uncertainty or variability of expected return Divided Account – liability of each member is

associated with a given investment limited in terms of participation

Expected Rate of Return – weighted average of Undivided Account – each member is liable for
possible returns unsold securities irrespective of what has sold

Probability – an event taking place as a chance Dealer – one who purchases securities and holds as
that an event will occur inventory for later sale

Standard Deviation – measurement of dispersion of Stock Rights – right that enables a stockholder to
the probability distribution which is commonly used make future purchases
to measure risk
Brokers – one who handles transactions for stock
Coefficient of Variation – simply dividing the exchange
standard deviation for a security by expected
value Flotation Cost – an expense related to registering
and selling securities
Business Risk – depends on variability in demand,
sales price, input prices, and amount of operating Outstanding Shares – preferred share dividends are
leverage based on the par value of this
– shares that are issued less treasury shares
Liquidity Risk – possibility that an asset may not be
sold on short notice for its market value Participating Preferred Stock – PS that share in the
excess dividends after preferred and common
Default Risk – that a borrower will be unable to dividends have computed
make interest payments or principal repayments on
debt Cumulative Preferred Stock – PS that will receive
whatever arrears dividends which have not been
Market Risk – stock’s price will change due to declared
changes in stock market atmosphere
Preemptive Right – right that will allow a stockholder
Interest Rate Risk – risk resulting from fluctuations in to purchase new shares of stock before stocks are
the value of asset as interest rate change offered to public
Purchasing Power Risk – rise in price will reduce the Treasury Stock – shares that are issued and
quantity of goods that can be purchased with a redeemed and with plans to be resale in the future
fixed sum of money
Proxy Statement – statement which gives the
Expected Return on Portfolio – weighted average management the right to vote common holder
return of the individual assets in portfolio share
Unsystematic and Systematic Risks – total risks of Stock A – shares that have sold to the public and
sum no dividends specified
Diversification – process where portfolio risk can be Stock B – kept by company’s organizer
reduced
Investment Banks – institution that purchases and
CAPM and SML – these equations shows that the distributes new securities of a company
required rate of return in a security is equal to the
risk-free rate plus risk premium Portfolio Management – encompasses managing of
money, operating and advertising mutual funds
Gordon Growth Model – computes the value of a and individual pension funds
common stock when dividends are expected to
grow a constant rate Convertible Bonds – hybrid securities with a feature
of both debt and equity
Beta – is an index of systematic risk
Zero Growth Model – model that assumes a
Preferred and Common Stock – sources of equity constant dividend stream
financing
Underwriting – IB buys a new security, pays the
Syndicate – groups of investment bankers who issuer, and markets the securities
handles large issuance of finances
Distributing – IB markets the security issue
Originating House – investment banker who
manages the group (syndicate)
Giving Advice – IB provides valuable advice to the
company concerning best way to raise funds

Providing Funds – IB furnishes funds to the company


during distribution period

Initial Public Offering – selling formerly privately held


shares to new investors on the organized exchange

Venture Capital Firms – supply funding from private


sources for investing in select companies

Noncumulative Preferred Stock – need not to pay


missed preferred dividends

Relative Total Par Value – distribution of excess


dividends will be based on this

Adjustable-rate Preferred – perpetual preferred with


floating dividend rate that resets each quarter
(variable-rate or floating preferred) rate is tied on
Treasury securities

Money Market Preferred Stock – very attractive to


investors since it has low market risk, competitive
yield and liquidity (auction-rate or market auction
preferred)

Authorized Shares – maximum amount of stock the


company can issue

Issued Shares – number of authorized shares which


have been sold

Par Value – stated amount of value per share

Cumulative Voting – allows for multiple votes for a


particular director

Capital Stock – stock issued by the corporation and


stated at par value

Paid-In Capital – excess over par value received

Retained Earnings – accumulated earnings of the


company less any dividends paid out

Corporation Financial Manager – concerned with


selecting the best possible source of financing

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