Finance 3
convertibles
Corporate securities (usually preferred shares or bonds) that are exchangeable for a set number of another form (usually common shares) at a prestated price.
project finance
Financing where repayment comes from cash flows generated by a particular project, not the total cash flows and assets of the borrower(s)
venture capital
Money that is invested in new or emerging companies that are perceived as having great profit potential
Primary Distribution
Sale of a new issue of stocks or bonds from issuing firm
lockup
The 180-day period after an IPO during which insiders are not legally allowed to sell their shares.
Initial Public Offering (IPO)
The first public offering of a corporation's stock. an opportunity for investors to make a lot of money b/c market value just based on expectations for future growth
preemptive rights
The right of a shareholder in a corporation to have the first opportunity to purchase a new issue of that corporation's stock to prevent dilution of control
asset based financing
accepts as collateral such as the assets of a firm in exchange for the loan
falma-french results
asset return variation due to 2 factors: firm size and firm book to market value (high ratio of book/market is a value stock)
serial bonds
bonds of a single issue that mature on different dates
callable bonds
bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity
beta
captures relevant risk of asset in market portfolio
income bonds
coupon payments depend on company income
arbitrage pricing theory
each stock return depends on several independent factors
securities and exchange commission rule 144: public sale of unregistered securities
establish the condition where a holder of unregistered security can make a public sale without filing a formal registration
Sharpe ratio
excess return per unit of risk
fixed vs floating rates
fixed rate loan: interest rate doesnt fluctuate with market floating rate note: variable interest rate adjusted every six months and tied to treasury bill rates
Senior vs. Subordinated
if default, subordinated lender is paid after all senior creditors
capital market line
line between risk-free asset and risky portfolio that maximizes Sharpe ratio (a tangent line)
variance of asset
measure of the spread or dispersion of the possible outcomes for an asset
correlation coefficient
measure the extent to which assets move in the same direction
sinking fund
money saved on a regular basis in a separate account to redeem debt securities or preferred stock issues
securities and exchange commission rule 415: shelf registration
permits firms to file a registration for securities they intend to issue in the future when market conditions are favorable
securities and exchange commission rule 144a
proposal that exempts US and foreign firms from registration requirements of sale of securities to some large institutions and private place them
secondary distribution
public sale of previously issued securities held by an investor
private placement
sale of asset directly to institutional investor
secured vs unsecured
secured bond is backed by collateral
tracking stock
separate stock created by a parent company to track the financial progress of a particular piece of business. Despite being part of a publicly traded entity, these stocks trade under unique ticker symbols. These stocks are meant to create opportunities for investors to buy into a fast-growing unit without investing in the whole company.
phantom stock
shares issued to employees which "unlike options" function like a bonus pool, which has to be charged out of earnings
commercial paper
short-term unsecured debt issued by large corporations
capital asset pricing model
shows security market line, where risk-free rate plus asset risk free premium is shown (fair value of asset)
Efficiency frontier
shows variance and expected returns for any given asset
unsystematic risk
stock price variability (and returns) resulting from factors specific to individual company
return
(ending value/beginning value) -1
systematic risk
(market risk) captures the reaction of stocks and portfolios to general market swings. Cannot be eliminated by diversification, can be estimated by beta
