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Principles of Finance

Key Terms

Principles of FinanceKey Terms
bond returns
sums the periodic interest payments and the change in bond price in a given period and divides by the bond price at the beginning of the period
commercial paper (CP)
a short-term, unsecured security issued by corporations and financial institutions to meet short-term financing needs such as inventory and receivables
debenture
a common type of unsecured bond issued by a corporation
indenture
legal term for a bond contract
inflation
a general increase in prices and a reduction in purchasing power; expected rate is a key component of interest rates
initial public offering (IPO)
the first time a firm offers stock to the public
mortgage bond
bond issued by a corporation using a real asset, such as property or buildings, to guarantee it
municipal bonds (munis)
bonds issued by a local government, territory, or agency; generally used to finance infrastructure projects
negotiable certificates of deposit (NCDs)
large CDs issued by financial institutions; redeemable at maturity but can trade prior to maturity in a broad secondary market
primary market
market for new securities
seasoned equity offering (SEO)
a method used by new IPOs to raise capital by offering additional shares of stock to the public
secondary market
market for used securities
shelf registration
part of Securities and Exchange Commission (SEC) Rule 415; allows a company to register with the SEC to issue new shares but allows up to two years before issuing the shares
special purpose acquisition companies (SPACs)
a special form of IPO
stock returns
sums the periodic dividend payments plus the change in stock price in a given period divided by the stock price at the beginning of the period
total returns
the sum of all cash flows received from an investment; includes periodic cash flows plus price appreciation or price depreciation
Treasury bills (T-bills)
short-term debt instruments issued by the federal government and maturing in a year or less
Treasury bonds
government debt instruments with maturities of 20 or 30 years
Treasury notes (T-notes)
government debt instruments with maturities of 2, 3, 5, 7, or 10 years
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