Financial Markets

Capital gain

An increase in the market value of an asset

Corporation

A business organization having a continuous existence independent of its members (owners) and power and liabilities distinct from those of its members

Bond

A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU

Retained earnings

Amount of corporate profits not paid out in dividends

Dividend

Amount of corporate profits paid out for each share of stock

Default

Failure to make scheduled payments of interest or principal on a bond

Financial intermediary

Institution (e.g., bank or the stock market) that makes savings available to dissavers (e.g., investors)

Coupon rate

Interest rate set for a bond at time of issuance

Corporate stock

Shares of ownership in a corporation

Liquidity

The ability of an asset to be converted into cash

Risk premium

The difference in rates of return on risky (uncertain) and safe (certain) investments

Par value

The face value of a bond; the amount to be repaid when the bond is due

Initial public offering (IPO)

The first issuance )sale to the general public of stock in a corporation

Price/earnings (P/E) ratio

The price of a stock share divided by earnings (profit) per share

Expected value

The probable value of a future payment, including the risk of nonpayment

Current yield

The rate of return on a bond' the annual interest payment divided by the bond's price

Present discounted value (PDV)

The value today of future payments, adjusted for interest accrual