Chapter 9 Key Terms Flashcards
corporation
a firm that has the legal status of a fictional individual. Owned by a number of persons, called stockholders, and run by a set of elected officers and a board of directors, whose chairman is often also in a powerful position.
limited liability
a legal obligation of a firm’s owners to pay back company debts only with the money they have already invested in the firm
common stock
a piece of paper that gives the holder of the stock a share of the ownership of the company; also called a “share”
bond
an IOU sold by a corporation that promises to pay the holder of the bond a fixed sum of money at the specified maturity date and some other fixed amount of money (the coupon or interest payment) every year up to the date of maturity
inflation
when prices in an economy rise rapidly. The rate of inflation is calculated by averaging the percentage growth rate of the prices of a selected sample of commodities.
interest rate
the amount that borrowers currently pay to lenders per dollar of the money borrowed – it is the current market price of a loan
plowback (retained earnings)
the portion of a corporation’s profits that management decides to keep and reinvest in the firm’s operations rather than paying out as dividends to shareholders
portfolio diversification
inclusion of a number and variety of stocks, bonds, and other such items in an individual’s portfolio.
mutual fund
a private investment firm that holds a portfolio of securities that individual investors can buy shares of (e.g. stock funds, bond funds)
index fund
a mutual fund that chooses a particular stock price index and then buys the stocks (or most of the stocks) that are included in the index. The value of an investment in an index fund depends on what happens to the prices of all stocks in that index.
stock price index
an average of the prices of a large set of stocks. (such as the S&P 500). These stocks are selected to represent the price movements of the entire stock market, or some specified segment of the market, and the chosen set is rarely changed.
takeover
the acquisition by an outside group (the raiders) of a controlling proportion of a company’s stock. When the old management opposes the takeover attempt, it is called a hostile takeover.
speculation
deliberate investment in risky assets, hoping to obtain profits from future changes in the prices of these assests
random walk
the time path of a variable such as the price of a stock is said to constitute THIS TERM if its magnitude in one period is equal to its value in the preceding period plus a completely random number
