Finance 3000 Exam 2

annuities streams of level and frequent cash flows paid at the end of each time period – often referred to as an ordinary annuity
perpetuity a special type of annuity with a stream of level cash flows that are paid forever
consols investment assets structured as perpetuities
annuity due an annuity in which cash flows are paid at the beginning of each time period
annual percentage rate (APR) the interest rate per period times the number of periods in a year
effective annual rate (EAR) a more accurate measurement of what you will actually pay
amortized loan a loan in which the borrower pays interest and principal over time
loan principle the balance yet to be paid on a load
amortization schedule a table detailing the periodic loan payment, interest payment and debt balance over the life of the loan
financial markets the places and processes that facilitate the trading of financial assets between investors
primary markets markets in which corporations raise fund through new issues of securities
investment banks banks that help companies and governments raise capital(Morgan Stanley, Goldman Sachs, Merrill Lynch)
initial public offerings the first public issue of financial instruments by a firm
secondary markets markets that trade financial instruments once they are issued (The New York Stock Exchange, NASDAQ)
trading volume the number of shares of a security that are simultaneously bought and sold during a period
money markets markets that trade debt securities or instruments with maturities of less than one year
over the counter markets markets that do not operate in a specific fixed location – rather, transactions occur via telephones, wire transfers and computer trading
treasury bills short term US government obligations
federal funds short term funds transferred between financial institutions, usually for no more than one day
repurchase agreements agreements involving security sales by one party to another, with the promise to reverse the transaction at a specified date and price, usually at a discounted price
commercial paper short term unsecured promissory notes that companies issue to raise short-term cash
negotiable certificates of deposit bank-issued time deposits that specify an interest rate and maturity date and are negotiable – that is, traded on an exchange. Their face value is usually at least $100,000.
Banker acceptances bank-guaranteed time drafts payable to a vendor of goods.
capital markets markets in which parties trade equity (stocks) and debt (bonds) instruments that mature in more than one year.
treasury notes and bonds U.S. treasury long term obligations issued to finance the national debt and pay for other federal government expenditures
state and local government bonds debt securities issued by state and local governments, usually to cover long-term improvements
mortgages long term loans issued to individuals or businesses to purchase homes, pieces of land, or other real property
mortgage backed securities long term debt securities that offer expected principal and interest payments as collateral. These securities, made up of many mortgages, are gathered into a pool and are thus “backed” by promised principal and interest cash flows.
corporate bonds long-term debt securities issued by corporations
corporate stocks long term equity securities issued by public corporations; stock shares represent fundamental corporate ownership claims
foreign exchange markets markets in which foreign currency is traded for immediate or future delivery
foreign exchange risk risk arising from the unknown value at which foreign currency cash flows can be converted into U.S. dollars
derivative security a financial security that is linked to another, underlying security, such as stock traded in capital markets or British pounds traded in foreign exchange markets. *Newest and potentially the riskiest
financial institutions institutions that perform the essential function of channeling funds from those with surplus funds to those with sort ages of funds
bonds debt obligation securities that corporations, the federal government, or its agencies, or states and local governments issue to fund various projects or operations
fixed income securities any securities that make fixed payments
principal face amount or par value of a debt
indenture agreement legal contract describing the bond characteristics and the bondholder and issuer rights
maturity date the calendar date on which the bond principal comes due
par value the face value of each bond, which i the principal loan amount that the borrower must pay
time to maturity the length of time until the bond matures and the issuer repays the par value
call an issuer redeeming the bond before the scheduled maturity date
call premium the amount in addition to the par value paid by the issuer when calling a bond
coupon rate the annual amount of interest paid expressed as a percentage of the bond’s par value

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