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