Finance Definitions
Essay Preview: Finance Definitions
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* Finance- Finance is the study of how people and businesses evaluate investments and raise capital to fund them.
* Efficient market- A market whose prices quickly respond to the announcement of new information.
* Primary market- is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. In this market, firms issue new securities to raise money that they can then use to help finance their businesses
* Secondary market- is where all subsequent trading of previously issued securities takes place.
* Risk – is the calculated variance and the standard deviation on a cash return of an investment.
* Security- A negotiable instrument that represents a financial claim that has value. Securities are broadly classified as debt securities (bonds) and equity securities (shares of common stock).
* Stock- An instrument that signifies an ownership position in a corporation.
* Bond- A long-term (10-year or more) promissory note issued by a borrower, promising to pay the owner of the security a predetermined amount of interest each year.
* Capital- Is money that one has invested. Capital is also money that is used to generate income or to make an investment.
* Debt – Money that has been borrowed and must be repaid. This includes such things as bank loans and bonds.
* Yield- Is describe as the amount in cash that returns to the owners of a security.
* Rate of return- is the gain or loss experience during a period.
* Return on investment- is the gain or loss on an investment, which is cash return
* Cash flow – is the source of value, it measures the amount of cash that can actually be taken out of the business over an interval time. As a result, it is the source of value
(Titman, keown, & Martin, 2011, p. 1)