AOF Sophomore Unit 4 Vocab

401(k) Financing

Financing in which an entrepreneur funds a business with money from his or her own 401(k) retirement account. This account is typically set up with an employer and used to fund retirement needs

504 Loan

A long-term loan from the Small Business Administration

Angel investors

Investors who use their own money as a start-up capital for a business, usually in exchange for a share of ownership

Asset-based loan

A loan secured by a company’s assets

Bank term loan

A loan from a bank, usually at a fixed interest rate and for a predetermined period of time

CDFI’s (Community Development Financial Institutions)

Financial organizations that provide services, including investment capital, credit unions, and personal loans, to underserved areas

Direct public offering (DPO)

A company's offering of stock, limited to $1 million or less, directly to investors on a crowdfunding website

Equipment leasing

An investor buys a piece of equipment that a business needs and then leases it to the business. This means that businesses do not need as much capital up front.

Federal government venture capital

A loan from the federal government for developing start-up businesses

Initial public offering (IPO)

A company's first offering of stock (a share in the company) for sale on a public market using underwriters

Institutional venture capital

Investment capital from firms that specialize in business investment, usually for a very large amount of money

Long-term financing

Money needed for the purchase of assets, such as buildings or land. It is usually repaid within 3 to 10 years.

Microloan

A very small loan to an entrepreneur who, because of a lack of assets or a credit history, would not ordinarily be able to get one.

Private loan guarantee

A guarantee by an investor of repayment of a bank loan to a business that would not otherwise be able to get a loan.

Royalty financing

A loan to a business in which the lender gets a percentage of future sales

SBA-guaranteed loans

Loans from the Small Business Administration (SBA) that guarantee up to 85% of a bank loan to a business that would not otherwise be able to get a loan.

Short-term financing

Money needed for the daily operations of the business, such as purchasing supplies. It is generally repaid in less than one year.

Best efforts underwriting

An agreement in which an underwriter will use all efforts to sell as much of an issue as possible to the public.

Capital appreciation

An increase in the price of a share of stock

Common stock

Securities representing part ownership in a corporation, providing voting rights, and entitling the holder to a share of the company’s success through dividends and/or capital appreciation.

Dividend

A portion of a company’s profits that is paid out to it’s shareholders. These can be paid regularly or intermittently and are usually paid out as cash, though they can also be paid out as stocks.

Investment bank

A securities firm that helps corporations sell securities to the public.

Preferred stock

Capital stock that provides a specific dividend that is paid before any dividends are paid to common shareholders and that takes precedence over common stock. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders cannot vote.

Primary market

The marketplace where an issue of stocks is first sold. In a primary market transaction, the company is the seller.

Prospectus

A document that needs to be filed before stock in that company can be sold. Included is finances, management team, products/services, and company difficulties.

Secondary market

The market in which an investor purchases a security from another investor rather than from the issuing company.

Securities and Exchange Commission

A federal agency that regulates the US financial markets and securities industry.

Shareholder

Someone who owns one or more shares of common or preferred stock.

Stock market

A market for the buying and selling of stocks

Underwriter

An investment bank or syndicate of investment banks that attempts to sell securities for a first-time issuing company in the primary market

Underwriting

The process of selling securities for a first-time issuing company in the primary market.

Bond

A long-term debt instrument issued by a government or corporation for a specific amount of time for the purpose of raising capital.

Callable

A feature available for most bonds and preferred stocks that gives the issuer the ability to buy the security back from investors before the scheduled date of maturity. A surcharge might be assessed to the issuer if the security is repurchased.

Compound interest

Interest upon interest, where accrued interest is added to the principal sum and the whole is treated as new principal for the calculation of the interest for the next period.

Coupon bond

A bond that pays the holder a fixed interest payment (a coupon payment) every year until the bond reaches maturity. Ex: Treasury bonds, Treasury notes, and corporate bonds.

Coupon rate

The stated percentage rate of interest on a bond, which is usually paid out twice a year. Just as a bond’s face value never changes, its coupon rate also never changes.

Current yield

The percentage paid out from a stock dividend, or interest payments made on a bond, stated in terms of the current market price of the security. The current yield for a bond moves up or down as the price of the bond moves up or down. The price of the bond has an inverse relationship with the current market interest rates.

Dealer market

A market where dealers are assigned for specific securities. For example, NASDAQ is considered one of these.

Debenture bonds

Unsecured bonds that are only issued by creditworthy firms. Convertible bonds are usually these. Also known as unsecured junior bonds.

Discount

A situation that occurs when the price of a bond is lower than its par value. This is because the bond is paying at an interest rate lower than what is presently being paid by similarly rated bonds.

Face value

The specified final amount that an issuer promises to pay the owner of the bond at the date of maturity. Also called par value.

Fixed income securities

A broad category of investments that includes bonds. These get their name from the fact that the stream of payments are fixed by contract. Corporations and the government can issue a variety of these securities.

Junk, or high-yield bonds

Wall street slang for bonds listed at below investment grade (below the top 10 ratings) by agencies that rate bonds. Such bonds are frequently unsecured or thinly backed by company assets and thus carry a relatively high level of risk for investors.

Market price

The last reported price at which a security was sold.

Maturity date

The date of which the issuer of a bond promises to repay the full amount borrowed.

Mortgage bond

A bond that is secured by a pool of real estate mortgages.

Note

An instrument bearing legal evidence of debt. This is signed by the maker (borrower) and promises to pay a specified sum of money to the lender at a certain future date and place.

Par value

The face value of a security

Present value

The current equivalent value of an asset that will be received in the future.

Private placement

The sale of new securities, typically bonds or preferred stock, directly to a group of investors or institutional investors such as banks, pension funds, or insurance companies.

Senior securities

Preferred securities and bonds that receive higher priority for payment than common stock when a company is liquidated.

Stated yield

The interest rate stated on the face of a bond

Yield

The measure commonly used to estimate or determine a bond’s expected return

Yield to Maturity (YTM)

The return expected on a bond if it’s held until the maturity date.

Zero-coupon bonds

Municipal, corporate, or treasury bonds that pay no annual interest over the life of the bond, are offered at a deep discount to par value, and are redeemed at full value upon maturity. The investor’s return on investment comes when redeeming the bond at its face value. Also called zeros or deep-discount bonds.

Bank

A type of financial institution, usually a corporation, chartered by a state of federal government, that offers many services, including making loans, investing in securities, holding depositors’ money in individual accounts, honoring demands for payment against those accounts and paying interest on them, and issuing drafts and cashier’s checks.

Cooperative

A kind of property ownership in which everyone who uses a facility is a part owner (Ex: credit unions or some types of condominiums). This is often called a co-op.

Credit unions

Cooperative financial institutions in which all members (depositors and borrowers) are part owners and have a vote in leadership. Credit unions generally offer the same types of customer services as banks.

Insurance company

A firm that provides protection from the possibility of future financial harm in exchange for periodic payments. Types of this include fire, theft, and business interruption.

Investment firms

Companies that specialize in selling securities (like stocks or bonds) issued by businesses.