Finance Exam 2 vocab

  1. A type of debt or promissory note issued by the borrower that promises to pay its holder a predetermined and fixed amount of interest per year and the par value or face amount at the maturity date(greater than one year).
  2. Tangible assets such as inventory, real estate, machinery, equipment, and vehicles.
    Real assets
  3. Non-physical assets such as bonds, preferred stock and common stock that derive their value from a contractual claim on future cash payments or other economic units.
    Financial assets
  4. Original date the bond was issued.
    Issue date
  5. Date at which the borrowing entity is committed to repay the principal (par value).
  6. Face amount that will be repaid by the issuing entity at the time the bond matures.
    Par value
  7. Cash paid either annually or semi-annually to the investor.
    Coupons or interest payment
  8. A fixed interest rate paid per annum.
    Coupon rate
  9. An optional retirement provision that permits the issuing entity to redeem a debt issue prior to its maturity at a specified price (called a redemption or call price).
    Call feature
  10. an option that entitles the bondholder to sell (“put”) the bond back to the issuer before maturity at a predetermined price.
    Put feature
  11. An account where a certain amount of money is set aside annually into it to repay bonds at their maturity date.
    Sinking fund
  12. Debt with a conversion feature that allows the holder at his or her option to exchange the debt for the issuing company’s common stock at a predetermined price (conversion price).
    Equity-linked debt
  13. A legal agreement between the entity issuing the bonds and the bond trustee who represents the bondholders.
    Indenture agreement
  14. Opinions of the relative credit risk of fixed-income securities with an original maturity date of one year or more.
    Bond ratings
  15. States that long-term interest rates are a function of expected future (“forward”) short-term interest rates.
    Expectations theory
  16. States that the required returns on long-term securities tend to be greater the longer the time to maturity.
    Liquidity (maturity) premium theory
  17. States that interest rates within each maturity segment are determined by the supply and demand of that segment’s borrowers and lenders.
    Market segmentation theory
  18. The intrinsic or economic value of any asset can be found by calculating the present value of all future cash flows generated by the asset.
    Asset value
  19. Certifies equity or ownership in a corporation.
    Common stock
  20. PV of all future cash flows that the shareholder expects to receive.
    Value of common stock
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Finance Exam 2 vocab