Chapter 17 (economisc)

Financial Capital

Money used by businesses to produce goods/services

Venture Capital

Investment in small startups with high growth potential plus guidance

Reinvesting Profits

Using company profits to fund growth

Bank Loan

Money borrowed from a bank and repaid with interest

Bond

A loan from investors that must be repaid with interest

Bondholder

Investor who owns a bond and receives interest

Interest

Payment received for lending money

Corporate Bond

Bond issued by a company

Municipal Bond

Bond issued by a city

State Bond

Bond issued by a state government

Treasury Bond

Bond issued by the U.S. government

Junk Bond

High-risk bond with high interest rate

Stock

Ownership in a company

Share

Individual unit of stock

Shareholder

Person who owns stock

IPO (Initial Public Offering)

First sale of stock to the public

Dividend

Payment made to shareholders from profits

Capital Gain

Profit from selling an asset at a higher price

Sole Proprietorship

Business owned by one person

Partnership

Business owned by multiple people

Corporation

Business owned by shareholders

Private Company

Company not publicly traded

Public Company

Company whose stock is sold publicly

Corporate Governance

Systems that monitor and control executives

Liquidity

How easily an asset can be converted to cash

Return

Profit earned from an investment

Risk

Uncertainty about investment outcomes

Default Risk

Risk borrower fails to repay

Interest Rate Risk

Risk of changing interest rates

Actual Rate of Return

Total return including interest and capital gains

Financial Intermediary

Institution that connects savers and borrowers

Checking Account

Bank account for easy access and transactions

Savings Account

Bank account that earns interest

Certificate of Deposit (CD)

Deposit locked for a time in exchange for higher interest

FDIC

Government agency insuring bank deposits up to $250,000

Present Value

Current worth of a bond

Yield

Expected return on a bond

Mutual Fund

Collection of stocks or bonds

Index Fund

Mutual fund that tracks the overall market

Diversification

Spreading investments to reduce risk

Tangible Assets

Physical investments like houses, gold, or collectibles

Equity

Value of ownership after debts are paid

Random Walk

Stock prices are unpredictable short term but trend upward long term

Simple Interest

Interest earned only on the original amount

Compound Interest

Interest earned on original amount plus past interest