Term
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Definition
| the amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate |
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Term
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Definition
| the value today of a future cash flow or series of cash flows |
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Term
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Definition
| the arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied |
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Term
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Definition
| occurs when interest is earned on prior periods' interest |
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Term
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Definition
| Occurs when interest is not earned on interest |
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Term
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Definition
| The process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding |
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Term
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Definition
| a series of equal payments at fixed intervals for a specified number of periods |
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Term
| Ordinary (Deferred) Annuity |
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Definition
| an annuity whose payments occur at the end of each period |
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Term
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Definition
| an annuity whose payments occur at the begining of each period |
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Term
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Definition
| a perpetual bond issued by the British government to consolidate past debts; in general, any perpetual bond |
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Term
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Definition
| a stream of equal payments at fixed intervals expected to continue forever |
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Term
| Annual Percentage Rate (APR) |
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Definition
| the periodic rate times the number of periods per year |
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Term
| Effective (Equivalent Annual Rate (EFF% or EAR) |
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Definition
| the annual rate of interest actually being earned, as apposed to the quoted rate. AKA equivalent annual rate |
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Term
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Definition
| a loan that is repaid in equal payments over its life |
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Term
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Definition
| the amount by which prices increase over time |
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Term
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Definition
| A premium equal to expected inflation that investors add to the real risk-free rate of return |
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Term
| Default Risk Premium (DRP) |
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Definition
| the difference between the interest rate on a U.S. Treasury Bond and a corporate bond of equal maturity and marketability |
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Term
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Definition
| A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to its "fair market value" |
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Term
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Definition
| The risk of capital losses to which investors are exposed because of changing interest rates |
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Term
| Maturity Risk Premium (MRP) |
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Definition
| A premium that reflects interest rate risk |
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Term
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Definition
| The risk that a decline in interest reaes will lead to lower income when bonds mature and funds are reinvested |
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Term
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Definition
| A graph showing the relationship between bond yields and maturities |
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Term
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Definition
| A yield curve where interest rates on medium-term maturities are higher than rates on both short-and long-term maturities |
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Term
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Definition
| An upward-sloping yield curve |
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Term
| Inverted "Abnormal" Yield Curve |
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Definition
| A downward-sloping yeild curve |
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Term
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Definition
| A theory that states the shape of the yield curve depends on investors' expectations about future interest rates |
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Term
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Definition
| The situation that exists when a country imports more than it exports |
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Term
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Definition
| A long-term debt instrument |
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Term
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Definition
| Bonds issued by the federal government, sometimes referred to as government bonds |
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Term
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Definition
| Bonds issued by corporations |
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Term
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Definition
| Bonds issued by state and local governments |
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Term
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Definition
| Bonds issued by foreign governments or by foreign corporations |
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Term
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Definition
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Term
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Definition
| the specified number of dollars of interest paid each year |
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Term
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Definition
| The state annual interest rate on a bond |
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Term
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Definition
| a bond whose interest rate is fixed for its entire life |
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Term
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Definition
| a bond whose interest rate fluctuates with shifts in the general level of interest rates |
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Term
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Definition
| A bond that pays no annual interest but is sold at a discount below par, thus compensating investors in the form of capital appreciation |
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Term
| Original Issue Discount (OID) Bond |
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Definition
| any bond originally offered at a price below its par value |
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Term
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Definition
| a specified date on which the par value of a bond must be repaid |
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Term
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Definition
| the nubmer of years to maturity at the time a bond is issued |
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Term
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Definition
| a provision in a bond contract that fives the issuer the right to redeem the bonds under specified terms prior to the normal maturity date |
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Term
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Definition
| a provision in a bond contract that requires the issuer to retire a portion of the bond issue each year |
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Term
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Definition
| a bond that is exchangeable at the option of the holder for the issuing firm's common stock |
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Term
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Definition
| a long-term option to buy a stated number of shares of common stock at a specified price |
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Term
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Definition
| a bond with a provision that allows its investors to sell it back to the company prior to maturity at a prearranged price |
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Term
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Definition
| a bond that pays interest only if it is earned |
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Term
| Indexed (Purchasing Power) Bond |
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Definition
| A bond that has interest payments based on an inflation index so as to protect the holder from inflation |
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Term
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Definition
| A bond that sells below its par value; occurs whenever the going rate of interest is above the coupon rate |
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Term
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Definition
| A bond that sells above its par value; occurs whenever the going rate of interest is below the coupon rate |
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Term
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Definition
| The rate of return earned on a bond if it is held to maturity |
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Term
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Definition
| the rate of return earned on a bond when it is called before its maturity date |
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Term
| Interest Rate (Price) Risk |
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Definition
| the risk of a decline in a bond's price due to an increase in interest rates |
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Term
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Definition
| The risk that a decline in interest rates will lead to a decline in income from a bond portfolio |
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Term
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Definition
| The period of time an investor plans to hold a particular investment |
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Term
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Definition
| A bond backed by fixed assets. First mortgage bonds are senior in priority to claims of second mortgage bonds |
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Term
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Definition
| A formal agreement between the issuer and the bondholders |
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Term
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Definition
| a long-term bond that is not secured by a mortgage on specific property |
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Term
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Definition
| A bond having a claim on assets only after the senior debt has been paid off in the event of liquidation |
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Term
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Definition
| a high-risk, high-yield bond |
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Term
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Definition
| The risk an investor would face if he or she held only one asset |
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Term
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Definition
| a statistical measure of the variability of a set of observations |
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Term
| Coefficient of Variation (CV) |
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Definition
| the standardized measure of the risk per unit of return; calculated as the standard deviation divided by the expected return |
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Term
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Definition
| risk-averse investors dislike risk and require higher rates of return as an inducement to buy riskier securities |
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Term
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Definition
| The difference between the expected rate of return on a given risky asset and that on a less risky asset |
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Term
| Capital Asset Pricing Model (CAPM) |
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Definition
| A model based on the proposistion that any stock's required rate of return is equal to the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification |
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Term
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Definition
| The tendency of two variables to move together |
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Term
| Correlation Coefficient ρ |
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Definition
| a measure of the degree of relationship between two variables |
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Term
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Definition
| the risk that remains in a portfolio after diversification has eliminated all company-specific risk. This risk is also known as nondiversifiable or systematic or beta risk |
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Term
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Definition
| that part of a security's risk associated with random events |
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Term
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Definition
| the risk that remains once a stock is in a diversified portfolio is its contribution to the portfolio's market risk |
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Term
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Definition
| a metric that shows the extent to which a given stock's returns move up and down with the stock market. Beta thus measures market risk |
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Term
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Definition
| the additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk |
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Term
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Definition
| a document giving one person the authority to act for another, typicall the power to vote shares of common stock |
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Term
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Definition
| an action whereby a person or group succeeds in ousting a firm's management and takin control of the company |
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Term
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Definition
| a representative investor whose actions reflect the beliefs of those people who are currently trading a stock. It is the marginal investor who determines a stock's price |
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Term
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Definition
| the expected rate of growth in dividends per share |
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Term
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Definition
| the minimum rate of return on a common stock that a stockholder considers acceptable |
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Term
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Definition
| The rate of return on a common stock that a stockholder expects to receive in the future |
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Term
| Actual (realized) rate of return |
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Definition
| the rate of return on a common stock actually received by stockholders in some past period |
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Term
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Definition
| the expected dividend divided by the current price of a share of stock |
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Term
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Definition
| The capital gain during a given year divided by the beginning price |
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Term
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Definition
| the sum of the expected dividend yield and the expected capital gains yield |
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Term
| Supernormal (Nonconstant) Growth |
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Definition
| the part of the firm's life cycle in which it grows much faster than the economy as a whole |
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Term
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Definition
| the date when the growht rate becomes constant. At this date, it is no longer necessary to forecast the individual dividends |
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Term
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Definition
| the value at the horizon date of all dividends expected thereafter |
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Term
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Definition
| a hybrid, it is similar to a bond in some respects and to common stock in others |
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