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Corporate Finance > Definitions > Flashcards

Definitions Flashcards

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1
Q

Maturity date

A

The date at which the principal amount of debt is repaid

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2
Q

Uncovered interest parity

A

Attempting to forecast future spot rates using the currency interest rates. No locked future rate

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3
Q

Require rate of return = cost of capital

A

The company’s estimate of the returns it needs to generate for potential providers of investment funds

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4
Q

Par value

A

Nominal value

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5
Q

Options

A

Allow you, for a premium fee, to take advantage of favourable movement of the market by buying or selling the asset at a fixed rate

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6
Q

Capitalised value/stock market value of a company

A

Current market price of a company’s listed share X number of shares

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7
Q

Forward rate/buy

A

Rate/price agreed today for delivery at an agreed future date

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8
Q

Internal rate of return

A

The discount rate at which the NPV of a project is equal to 0

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9
Q

Portfolio

A

A collection of assets

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10
Q

Dividend

A

A return to shareholders on the amount paid to the corporation

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11
Q

Dividend irrelevance hypothesis

A

Hypothesis where a pattern of dividends is irrelevant to the value of shares

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12
Q

Covariance

A

The measure indicating the extent to which two securities change in tandem

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13
Q

Ordinary shares

A

The fundamental ownership units of a corporation

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14
Q

Covered interest rate parity in an arbitrage relation

A

There isn’t enough of a difference in rates to make a profit therefore it eliminates risk

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15
Q

K

B

A

Cost to the company of providing that require rate of return

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16
Q

Real interest rate

A

Cash flows as if they are going to happen to today; inflation stripped out

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17
Q

Bid-offer spread

A

Dealer buys currency at bid rate. Sells it at an offer rate

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18
Q

Business risk

A

Risk faced by all equity-holders

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19
Q

Future contracts

A

Using a predetermined fixed rate of exchange

20
Q

Average rate of return

A

Average profit/ average investment

21
Q

Cum div

A

Dividend is just about to be paid (entitled to a div)

22
Q

Correlation

A

A measure indicating how strongly two securities are related

23
Q

Hedging

A

A process where a company tries to avoid potential exposure to any risk

24
Q

FTSE 100

A

Financial Times stock exchange (not well diversified)

25
Q

Risk averse

A

Someone who is reluctant to take risk and will avoid unnecessary risk

26
Q

Expected return

A

The return an individual expects a security to earn over a period

27
Q

Opportunity cost of capital

A

The expected rate of return offered by the other assets with the same risk as the project being evaluated

28
Q

Risk premium

A

Extra return earned over the risk-free rate

29
Q

Beta of a security

A

How sensitive asset i’s returns are to fluctuations in the market’s returns

30
Q

Financial risk

A

Risk faced by all equity-holders in a geared firm

31
Q

Arbitrage

A

The simultaneous purchase and sale of an asset to profit from a difference in price

32
Q

Basis

A

Difference between futures prices and spot price

33
Q

Discount rate

A

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows

34
Q

Spot rate/price

A

A Rate/price agreed today for delivery (completion of contract) today

35
Q

Payback period

A

A period of time in a project found by counting the number of years it takes before the cumulative forecasted cash flow equals the initial investment

36
Q

Efficient market

A

One in which asset prices rapidly incorporate all relevant information

37
Q

Write

A

To sell a derivatives contract

38
Q

Risk

A

Variability (std dev) is returns

39
Q

Derivatives

A

Securities whose value is derived on the value of something else (the underlying)

40
Q

Capital Asset Price Model

CAPM

A

Shows how the expected return on an asset is related to its beta

41
Q

Book value/total equity

A

The total amount contributed to the corporation by equity investors

42
Q

Nominal interest/ money interest

A

Cash flows that will actually happen, taking into account any inflation

43
Q

Ex div

A

Div has just been paid

44
Q

The market

A

Strictly, all risky assets, in proportion to their values

45
Q

Efficient Frontier

A

All possible combinations of expected return and std dev in a given portfolio

Corporate Finance (1 decks)

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