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Introduction to Financial Concepts

Key Terms

• Lender or Creditor: Individual or institution providing funds to borrowers.

• Borrower/Debtor: Individual or institution that borrows money or uses funds from a lender.

Loan Details

• Origin or Loan Date: Date funds are disbursed to the borrower.

• Maturity Date: Date by which the borrowed funds must be repaid in full.

Annuities

• Annuity: A sequence of equal payments made at regular intervals.

  • Ordinary Annuity: Payments made at the end of each interval.

  • Annuity Due: Payments made at the beginning of each interval.

  • Simple Annuity: Payment intervals coincide with compounding intervals.

  • General Annuity: Payment intervals differ from compounding intervals.

Investment Terminology

• Investment: The process of allocating resources to generate future benefits.

• Stock: Indicates ownership in a public corporation.

  • Dividends: Payments made to shareholders, typically quarterly.

  • Capital Gains: Profits earned when stocks are sold at higher prices than their purchase prices.

• Stock Exchange: A marketplace for buying and selling stocks.

• Brokerage Firms: Companies that facilitate stock trading for investors.

Bonds and Their Features

• Bonds: Debt securities issued by corporations or governments, acting as IOUs.

  • Coupon Rate: Interest rate paid to bondholders.

  • Maturity Date (Bonds): Date when payment to bondholders is due.

  • Par Value: The amount bondholders receive at maturity.

Financial Systems and Intermediaries

• Financial System: Framework for transferring funds between savers and borrowers.

• Financial Intermediaries: Institutions that channel savings to borrowers.

  • Mutual Fund: Combines funds from multiple investors to diversify investments.

  • Hedge Fund: A private investment fund employing high-risk strategies for potentially large returns.

  • Pension Fund: Retirement fund established for employees.

Interest Types

• Simple Interest: Calculated solely on the principal amount.

• Compound Interest: Calculated on the principal plus any accumulated interest.

Stockholders

• Common Stockholders: Hold voting rights and share in profits.

• Preferred Stockholders: Receive fixed dividends but usually lack voting rights.

  • Par Value: Initial value of stock at the time of issuance.

• Total Net Worth: Sum of a company’s assets and retained earnings.

• Stock Yield: Indicator of investment profitability.

• Price-Earnings Ratio: Ratio of stock price to earnings per share.

• IPO (Initial Public Offering): First sale of stock by a private company to the public.

Types of Loans

• Bonds as Debt: Represents money owed to investors.

  • Government Bonds: Bonds issued by government entities.

  • Corporate Bonds: Offered by businesses to raise capital.

• Types of Loans:

  • Business Loans: Financing for business operations.

  • Consumer Loans: Individual borrowing for personal use.

  • Emergency Loans: Short-term loans for urgent situations.

Loan Security and Guarantees

• Collateral: Assets pledged to secure a loan.

• Guarantor: Person agreeing to pay debt if the borrower fails to do so.

Logical Propositions

Basic Concepts

• Proposition: A declarative statement.

  • Simple Proposition: A single declarative statement.

  • Compound Proposition: A conjunction of two or more statements.

Logical Connectives

• Conjunction: True only if all component statements are true.

• Disjunction:

  • Inclusive: True if at least one statement is true.

  • Exclusive: True if one statement is true and the other is false.

• Conditional Statements: Dependent on the truth value of the last proposition.

• Biconditional Statements: True if propositions match in truth value.

• Negation: Logical operation that inverts the truth value of a proposition.