Chapter 17 - Intro to Business

Time Value of Money

principle that invested money grows, over time, by
earning interest or some other form of return

Compound Growth

compounding of interest over time—with each
additional time period, interest returns accumulate

Market Value

current price of a share of stock in the stock market

Book value

value of a common stock expressed as the firm’s
owners’ equity divided by the number of common
shares

Dividend

payment to shareholders, on a per-share basis, out of
the company’s earnings

Blue-Chip Stock

common stock issued by a well-established and
respected company with a sound financial history and
a stable pattern of dividend payouts

Mutual Fund

company that pools cash investments from individuals
and organizations to purchase a portfolio of stocks,
bonds, and other securities

Exchange-Traded Fund (ETF)

bundle of stocks or bonds that are in an index that
tracks the overall movement of a market but, unlike a
mutual fund, can be traded like a stock

Securities

stocks, bonds, and mutual funds representing secured,
or asset-based, claims by investors against issuers

Securities Markets

markets in which stocks and bonds are sold

Primary Securities Market

market in which new stocks and bonds are bought and
sold by firms and governments

Secondary Securities Market

market in which existing (not new) stocks and bonds
are sold to the public

Securities and Exchange Commission (SEC)

government agency that regulates U.S. securities markets

Investment Bank

financial institution that specializes in issuing and reselling new securities

Stock Exchange

an organization of individuals to provide an institutional
auction setting in which stocks can be bought and sold

National Association Of Securities Dealers Automated Quotation (NASDAQ) System

world’s oldest electronic stock market consisting of dealers who buy and sell securities over a network of electronic communications

Electronic Communication Network (ECN)

electronic trading system that brings buyers and sellers
together outside traditional stock exchanges

Stock Broker

individual or organization that receives and executes buy and sell orders on behalf of outside customers in return for commissions

Book-Entry Ownership

procedure that holds investors’ shares in book-entry
form, rather than issuing a physical paper certificate of
ownership

Market Index

statistical indicator designed to measure the performance of a large group of stocks or track the price changes of a stock market

Bull Market

period of rising stock prices, lasting 12 months or longer, featuring investor
confidence for future gains and motivation to buy

Bear Market

period of falling stock prices marked by negative investor sentiments with motivation to sell ahead of anticipated losses

Risk-Return (Risk-Reward) Relationship

principle that safer investments tend to offer lower returns, whereas riskier investments tend to offer higher returns (rewards)

Capital Gain

profit realized from the increased value of an
investment

Total return

the sum of an investment’s current dividend (interest)
yield and capital gain

Angel Investors

outside investors who provide new capital for firms in
return for a share of equity ownership

Venture Capital

private funds from wealthy individuals seeking
investment opportunities in new growth companies

Corporate Bond

formal pledge obligating the issuer (the company) to
pay interest periodically and repay the principal at
maturity

Bond Indenture

legal document containing complete details of a bond
issue

Face Value (Par Value)

amount of money that the bond buyer (lender) lent the
issuer and that the lender will receive on repayment

Default

failure of a borrower to make payment when due to a
lender

Bondholders’ Claim

request for court enforcement of a bond’s terms of
payment

Mortgage-Backed Security (MBS)

mortgages pooled together to form a debt obligation—a
bond—that entitles the holder (investor) to cash that
flows in from the bundled mortgages

Bankruptcy

court-granted permission for a company to not pay
some or all debts

Initial Public Offering (IPO)

first sale of a company’s stock to the general public

Corporate Raider

investor conducting a type of hostile corporate takeover
against the wishes of the company

Stock Split

stock dividend paid in additional shares to
shareholders, thus increasing the number of
outstanding shares

Market Capitalization (Market Cap)

total dollar value of all the company’s outstanding
shares

Debt Financing 

long-term borrowing from sources outside a company

Equity Financing

using the owners’ funds from inside the company as
the source for long-term funding

Prospectus

registration statement filed with the SEC, containing
information for prospective investors about a security to
be offered and the issuing company

Insider Trading

illegal practice of using special knowledge about a firm
for profit or gain