Test 2 | FIN - Financial Management 1 - Introduction, Quizzes of Financial Management

Download Test 2 | FIN - Financial Management 1 - Introduction and more Quizzes Financial Management in PDF only on Docsity! TERM 1 Production Opportunities DEFINITION 1 The investment opportunities in productive (cash-generating) assets. TERM 2 Time Preferences for Consumption DEFINITION 2 The preferences of consumers for current consumption as opposed to saving for future consumption. TERM 3 Risk DEFINITION 3 In a financial market context, the chance that an investment will provide a law or negative return. TERM 4 Inflation DEFINITION 4 The amount by which prices increase over time. TERM 5 r DEFINITION 5 =The quoted, or nominal, rate of interest on a given security. TERM 6 r* DEFINITION 6 =the real risk-free rate of interest. The rate that would exist on a riskless security in a world where no inflation was expected. TERM 7 rRF DEFINITION 7 =r*+IP It is the quoted rate on a risk-free security such as a US Treasury bill, which is very liquid and is free of most types of risk. TERM 8 IP DEFINITION 8 =inflation premium. It is equal to the average expected rate of inflation over the life of the security TERM 9 DRP DEFINITION 9 =default risk premium This premium reflects the possibility that the issuer will not pay the promised interest or principal at the stated time. It is 0 for US Treasury securities, but it rises as the riskiness of the issuer increases TERM 10 LP DEFINITION 10 =liquidity (or marketability) premium This is a premium charged by lenders to reflect the fact that some securities cannot be converted into cash on short notices at a "reasonable" price. It is very low for Treasury securities and for securities issued by large, strong firms; but it is relatively high on securities issued by small, privately held firms. TERM 21 Bond DEFINITION 21 A long-term debt instrument TERM 22 Treasury Bonds DEFINITION 22 Bonds issued by the federal government, sometimes referred to as government bonds TERM 23 Corporate Bonds DEFINITION 23 Bonds issued by corporations TERM 24 Municipal Bonds DEFINITION 24 Bonds issued by state and local governments TERM 25 Foreign Bonds DEFINITION 25 Bonds issued by foreign governments or foreign corporations TERM 26 Par Value DEFINITION 26 The face value of a bond TERM 27 Coupon Payment DEFINITION 27 The specified number of dollars of interest paid each year TERM 28 Coupon Interest Rate DEFINITION 28 The stated annual interest rate on a bond TERM 29 Fixed-Rate Bond DEFINITION 29 A bond whose interest rate is fixed for its entire life TERM 30 Floating-Rate Bond DEFINITION 30 A bond whose interest rate fluctuates with shifts in the general level of interest rates TERM 31 Zero Coupon Bond DEFINITION 31 A bond that pays no annual interest but is sold at a discount below par, thus compensating investors in the form of capital appreciation TERM 32 Original Issue Discount (OID) Bond DEFINITION 32 Any bond originally offered at a price below its par value TERM 33 Maturity Date DEFINITION 33 A specified date on which the par value of the bond must be repaid TERM 34 Original Maturity DEFINITION 34 The number of years to maturity at the time a bond is issued TERM 35 Call Provision DEFINITION 35 A provision in a bond contract that gives the issuer the right to redeem the bonds under specified terms prior to the normal maturity date