Ch 17 Financial markets
Maturity date
A date that a bod must be paid.
Dividend
A direct payment from a firm to its shareholders.
Bond
A financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future.
Capital gain
A financial gain from buying an asset, like a share of stock or a house, and later selling it at a higher price.
Private company
A firm owned by the people who run it on a day-to-day basis.
Public company
A firm that has sold stock to the public, which in turn can be bought and sold by investors.
Risk
A measure of the uncertainty of that project's profitability.
Certificate of deposit
A mechanism for a saver to deposit funds at a bank and promise to leave them at the bank for a time, in exchange for a higher rate of interest.
Index funds
A mutual fund that seeks only to mimic the overall performance of the market.
Financial intermediary
An institution that receives money from savers and provides funds to borrowers.
Simple interest
An interest calculation only on the principle amount.
Compound interest
An interest rate calculation on the principle plus the accumulated interest.
Corporate governance
Economists give to the institutions that are supposed to watch over top executives owned by shareholders.
Venture capital
Financial investments in new companies that are still relatively small in size, but have potential to grow substantially.
Mutual fund
Funds that buy a range of stocks or bond from different companies, thus allowing an investor an easy way to diversify.
Bondholder
Someone who owns bonds and receives the interest payments.
Partnership
A company run by a group as opposed to an individual.
Sole proprietorship
A company run by an individual
Shareholders
People who own at least some shares of stock in a firm.
Stock
A claim on partial ownership of a specific firm.
Checking account
A bank account that typically pays little or no interest, but that gives easy access to money, either b writing a check or by using a "debit card".
Corporate bond
A bond issued by firms that wish to borrow.
Present value
A bond's current price at given time.
High yield bonds
Bonds that offer relatively high-interest rates to compensate for their relatively high chance of default.
Corporation
Business owned by shareholders who limited liability for the company's debt yet a share of the company's profits.
Junk bonds
High yield bonds.
Liquidity
How easily money or financial assets can be exchanged for a good or service.
Expected rate of return
How much a project or investment is expected to return to the investor, either in future payments, capital gains, or increased profitability.
Diversification
Investing in a wide range of companies to reduce the level of risk.
Municipal bond
Issued by cities that wish to borrow.
Treasury bond
Issued by the federal government through the U.S. Department of Treasury.
Debit card
Lets person make purchases and the cost is immediately deducted from checking account.
Savings account
Pays interest, low liquidity.
Face value
The amount that bond issuer or borrower agrees to pay investor.
Initial public offering
The first sale of shares of stock by a firm to outside investors.
Coupon rate
The interest rate paid on a bond.
Equity
The monetary value a homeowner would have after selling the house and repaying any outstanding bank loads used to buy the house.
Bond yield
The rate of return a bond is expected to pay at the time of purchase.
Shares
The stock of a firm, divided into individual portions.
Actual rate of return
The total rate of return, including capital gains and interest paid on an investment at the end of a period of time.
