Real Return - CORRECT ANSWER -Rate of growth in purchasing power of goods and services
Holding Period Return - CORRECT ANSWER -Return over the entire period that an investor owns a
financial security
Beta - CORRECT ANSWER -A measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole.
standard deviation - CORRECT ANSWER -Used to measure the total risk of securities
annuity due - CORRECT ANSWER -an annuity whose payments occur at the beginning of each period,
consecutively
Par Bond - CORRECT ANSWER -When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - CORRECT ANSWER -Profitability index. At 1, the PI means a internal return rate equal to the cost of
capital
Irr - CORRECT ANSWER -Internal rate of return (IRR) is a discount rate at which the net present value
(NPV) of an investment is equal to zero.
If the IRR is higher than the cost of borrowing to fund the investment, the investment should be
profitable. Always shown as percentage.
, Net Present Value (NPV) - CORRECT ANSWER -A method of ranking investment proposals using the NPV,
which is equal to the present value of the project's free cash flows discounted at the cost of capital.
Shown as dollar amount.. At $0 it means it will neither add nor subtract value.
Inventory Turnover - CORRECT ANSWER -An activity ratio found by COGS divided by inventory
dividends in arrears - CORRECT ANSWER -Feature of preferred stock specifying that if a company ignores
preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - CORRECT ANSWER -the possibility of conflict of interest between the owners and
management of a firm
Resolved by aligning interests, example giving shares to manangement
Operating Margin - CORRECT ANSWER -A profitability ratio found by EBIT profit divided by sales
Capital Structure - CORRECT ANSWER -the mixture of debt and equity maintained by a firm
Defensive Assets - CORRECT ANSWER -Companies or securities with betas less than 1.
Variable Expenditure - CORRECT ANSWER -an expense that you have direct control over and that can
change from period to period
Price Risk - CORRECT ANSWER -Potential for the decline in the price of a financial security or an asset
relative to the market
efficient market - CORRECT ANSWER -a market in which prices fully reflect all the available information
about a specific security
trend analysis - CORRECT ANSWER -Comparing a firms ratio across time
Holding Period Return - CORRECT ANSWER -Return over the entire period that an investor owns a
financial security
Beta - CORRECT ANSWER -A measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole.
standard deviation - CORRECT ANSWER -Used to measure the total risk of securities
annuity due - CORRECT ANSWER -an annuity whose payments occur at the beginning of each period,
consecutively
Par Bond - CORRECT ANSWER -When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - CORRECT ANSWER -Profitability index. At 1, the PI means a internal return rate equal to the cost of
capital
Irr - CORRECT ANSWER -Internal rate of return (IRR) is a discount rate at which the net present value
(NPV) of an investment is equal to zero.
If the IRR is higher than the cost of borrowing to fund the investment, the investment should be
profitable. Always shown as percentage.
, Net Present Value (NPV) - CORRECT ANSWER -A method of ranking investment proposals using the NPV,
which is equal to the present value of the project's free cash flows discounted at the cost of capital.
Shown as dollar amount.. At $0 it means it will neither add nor subtract value.
Inventory Turnover - CORRECT ANSWER -An activity ratio found by COGS divided by inventory
dividends in arrears - CORRECT ANSWER -Feature of preferred stock specifying that if a company ignores
preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - CORRECT ANSWER -the possibility of conflict of interest between the owners and
management of a firm
Resolved by aligning interests, example giving shares to manangement
Operating Margin - CORRECT ANSWER -A profitability ratio found by EBIT profit divided by sales
Capital Structure - CORRECT ANSWER -the mixture of debt and equity maintained by a firm
Defensive Assets - CORRECT ANSWER -Companies or securities with betas less than 1.
Variable Expenditure - CORRECT ANSWER -an expense that you have direct control over and that can
change from period to period
Price Risk - CORRECT ANSWER -Potential for the decline in the price of a financial security or an asset
relative to the market
efficient market - CORRECT ANSWER -a market in which prices fully reflect all the available information
about a specific security
trend analysis - CORRECT ANSWER -Comparing a firms ratio across time
