GLOSSARY Flashcards
(29 cards)
A priori probability
A probability based on logical analysis
rather than on observation or personal judgment.
Abandonment option
The ability to terminate an investment
at some future time if the financial results are disappointing.
Abnormal return
The amount by which a security’s actual
return differs from its expected return, given the security’s
risk and the market’s return
Absolute dispersion
The amount of variability present
without comparison to any reference point or benchmark.
Absolute frequency
The actual number of observations
counted for each unique value of the variable (also called
raw frequency)
Accelerated book build
An offering of securities by an investment bank acting as principal that is accomplished in only
one or two days.
Accelerated methods
Depreciation methods that allocate
a relatively large proportion of the cost of an asset to the
early years of the asset’s useful life.
Accounting costs
Monetary value of economic resources
used in performing an activity. These can be explicit, outof-pocket, current payments, or an allocation of historical
payments (depreciation) for resources. They do not include
implicit opportunity costs.
Accounting profit
Income as reported on the income statement, in accordance with prevailing accounting standards,
before the provisions for income tax expense. Also called
income before taxes or pretax income.
Accounts payable
Amounts that a business owes to its vendors
for goods and services that were purchased from them but
which have not yet been paid.
Accrued expenses
Liabilities related to expenses that have
been incurred but not yet paid as of the end of an accounting period—an example of an accrued expense is rent that
has been incurred but not yet paid, resulting in a liability
“rent payable.” Also called accrued liabilities
Accrued interest
Interest earned but not yet paid.
Acquisition method
A method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value. This
method was the result of a joint project of the IASB and
FASB aiming at convergence in standards for the accounting of business combinations.
Action lag
Delay from policy decisions to implementation.
Active investment
An approach to investing in which the
investor seeks to outperform a given benchmark.
Active return
The return on a portfolio minus the return on
the portfolio’s benchmark.
Activity ratios
Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of
receivables and management of inventory. Also called asset
utilization ratios or operating efficiency ratios.
Add-on rates
Bank certificates of deposit, repos, and indexes
such as Libor and Euribor are quoted on an add-on rate
basis (bond equivalent yield basis)
Addition rule for probabilities
A principle stating that the
probability that A or B occurs (both occur) equals the
probability that A occurs, plus the probability that B occurs,
minus the probability that both A and B occur.
Agency bond
a security issued by a government-sponsored enterprise or by a federal government department other than the U.S. Treasury. Some are not fully guaranteed in the same way that U.S. Treasury and municipal bonds are. An agency bond is also known as agency debt.
Agency costs
Costs associated with the conflict of interest
present between principals and agents when a company
is managed by non-owners. Agency costs result from the
inherent conflicts of interest between managers, bondholders, and equity owners.
Agency costs of debt
Costs arising from conflicts of interest
between managers and debtholders.
Agency costs of equity
The smaller the stake managers have
in the company, the less their share in bearing the cost
of excessive perquisite consumption—consequently, the
less their desire to give their best efforts in running the
company
Agency RMBS
In the United States, securities backed by
residential mortgage loans and guaranteed by a federal
agency or guaranteed by either of the two GSEs (Fannie
Mae and Freddie Mac).
