Unit 6: Factor Markets

Stock

A claim on partial ownership of a specific firm

Bondholder

Someone who owns bonds and receives the interest payments

Treasury Bond

A bond issued by the federal government through the U.S. Department of the Treasury

Certificate of Deposit (CD)

A mechanism for a saver to deposit funds at a bank and promise to leave them at the bank for a time, in exchange for a higher rate of interest

Checking Account

A bank account that typically pays little or no interest, but that gives easy access to money, either by writing a check or by using a “debit card”

Simple Interest

An interest rate calculation only on the principal amount

Compound Interest

An interest rate calculation on the principal plus the accumulated interest

Corporate Bond

A bond issued by firms that wish to borrow

Debit Card

A card that lets the person make purchases, and the cost is immediately deducted from that person’s checking account

Diversification

Investing in a wide range of companies to reduce the level of risk

Equity

The monetary value a homeowner would have after selling the house and repaying any outstanding bank loans used to buy the house

Financial Intermediary

An institution, like a bank, that receives money from savers and provides funds to borrowers

Initial Public Offering (IPO)

The first sale of shares of stock by a firm to outside investors

Liquidity

Refers to how easily money or financial assets can be exchanged for a good or service

Municipal bonds

A bond issued by cities that wish to borrow

Mutual funds

Funds that buy a range of stocks or bonds from different companies, thus allowing an investor an easy way to diversify

**Savings account**

A bank account that pays an interest rate, but withdrawing money typically requires a trip to the bank or an automatic teller machine

Shareholders

People who own at least some shares of stock in a firm

Venture capital

Financial investments in new companies that are still relatively small in size, but that have potential to grow substantially

Bond

A financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future

Federal Deposit Insurance Corporation (FDIC)

money deposited in a single bank- up to $250,000- is insured (or guaranteed) by

The 50/30/20 Budgeting Rule

spending 50% on needs, 30% on wants, and 20% on savings

How Businesses Raise Financial Capital?

(1) from early-stage investors; (2) by reinvesting profits; (3) by borrowing through banks or bonds; (4) by selling stocks.