1. Finance: Finance is the art and science of measuring money. 2.

Capital Budgeting: The process of planning and managing a firms long term investment 3. Capital structure: The mixture of debt and equity maintained by the firm. 4. Working capital: A firms short term assets and liabilities. 5. Agency Problem: The possibility of conflict of interest between the stock holders and management of a firm. 6. Primary Market: In a primary market transaction, the corporation is the seller, and the transaction raises money for the corporation. Corporation engages two types of primary market transaction: Public offerings and private placement. 7. Secondary Market: A secondary market transaction involves one owner or creditor selling to another. Therefore the secondary market transaction provides the means for transferring ownership of corporate securities. 8. Time Value of Money: The time value of money refers to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future. 9. Compounding: The process of accumulating interest on an investment over time to earn more interest. 10. Discounting: Calculation of the present value of some future amount. 11. Discount Rate: The rate used to calculate the present value of future cash flow. 12. Present Value: The current value of future cash flow discounted at the appropriate discount rate. 13. Future Value: The amount of an investment is worth after one or more period. 14. Annuity: Annuity is a series of equal payment for a specific period. It is a level stream of cash flows for a fixed period of time. 15. Ordinary Annuity: A series of constant or level cash flows that occur at the end of each period for some fixed number of period. 16. Annuity Due: An annuity for which the cash flows occur at the beginning of the period. 17. Perpetuity: An annuity in which the cash flows continue forever. Perpetuity is also called consol (in Canada & UK). Preferred stock is an important example of it. 18. Effective Interest Rate (EIR): The actual paid on a loan, or earned on a deposit account, depending on the frequency of compounding or effect of inflation. It is different from the nominal rate of interest which ignores compounding and other factors. 19. Bond: A Bond is a fairly simple financial arrangement. When a corporation or government wishes to borrow money from the public on a long term basis, it usually does so by issuing or selling debt securities that is generally called Bond.

20. Debenture: A debenture is an unsecured bond, for which no specific pledge of property is made. Usually it is with a maturity of 10 years or more. 21. Coupon: The stated interest rate made on a bond. It is a regular interest payment on bond. 22. Coupon Rate: The annual coupon of a bond which is divided by the face value of that bond is called coupon rate on the bond. 23. Face Value: The principal amount of a bond that is repaid at the end of the term (loan), is called the bonds face value. 24. Yield To Maturity (YTM): The interest rate that is required in the market on a bond is known as yield to maturity (YTM). This rate sometimes called the bonds yield for short. 25. Zero Coupon Bond: A bond that pays no coupons at all must be offered at a price that is must lower than its stated value. Thus bonds are called zero coupon bonds. 26. Indenture: The bond indenture is a legal document. The indenture is a written agreement between the corporation (borrower) & its creditor (lender) which included the terms of the debt issue in details. 27. Callable Bond: A bond which the issuer has the right to redeem ( ) prior to its maturity date, under certain conditions. When issued, the bond will explain when it can be redeemed and what the price will be. In most case, the price will be slightly above the per value for the bond. 28. Convertible Bond: The convertible bond is the bond that can be exchanged for a fixed number of shares of stock anytime up to & including the maturity date of a bond (for a specific amount of time). 29. Sinking Fund: A sinking fund is an account managed by the bond trustee for the purpose of the repaying the bonds. The company makes annual payments to the trustee, who then uses the funds to retire a portion if the debt. 30. Gordon Growth Model: A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends. Stock value, (P) =D/(r-g) Where: D = Expected dividend per share one year from now r = Required rate of return for equity investor g = Growth rate in dividends (in perpetuity) 31. Proxy: A proxy is the grand of authority by a stockholder to someone else to vote his or her shares. Shareholders can come to the annual meeting &vote a person, or they transfer their right to vote to another party. If they transfer their voting right to another party, is known as proxy. 32. Preferred Stock: Preferred stock is a type of stock where a fixed amount of dividend is paid to the stockholders in a regular interval. Preferred stockholders are given more priority over common stockholder. Generally dividends are paid quarterly to the preferred stockholders.

33.Common Stock: Common stock is the stock where no fixed dividends are paid to the stockholder. It is usually applied to the stock that has no special preference either in receiving dividends or bankruptcy.

33. Over The Counter Market (OTC Market): Securities market in which trading is almost
exclusively done through dealers who buy and sell their own inventories, is called an Over-theCounter (OTC) market.

34. Pay back period: Payback period is the amount of time required for an investment to generate
cash flows sufficient to recover its initial cost.

35. Net Present Value (NPV): Net present value is the difference between an investments market
value and its cost.

36. Internal Rate of Return (IRR): Internal rate of return is the discount rate that makes the Net
Present Value (NPV) of an investment zero.

37. Risk Premium: Risk premium is the excess return required from an investment in a risky asset
over that required from a risk free investment.

38. Capital market: Capital market is the market for long-term funds where securities such as
common stock, preferred stock, and bonds are traded. Both the primary market for new issues and the secondary market for existing securities are part of the capital market.

39. Money market: Money markets are for borrowing and lending money for three years or less.
This Market is for short-term debt securities, such as banker's acceptances, commercial paper, negotiable certificates of deposit, and Treasury Bills with a maturity of one year or less.

40. Market efficiency: Market efficiency is the measure of the availability of the information to all
participants in a market that provides maximum opportunities to buyers and sellers to effect transactions with minimum transaction costs.

41. Portfolio: Portfolio is a group of assets such as stocks and bonds held by an investor.
42. Risk: The variability of returns from an investment. The greater the variability, the greater the risk. Investments with greater risk must promise higher expected yields.

43. Systematic Risk: Systematic risk is a risk that influences a large number of
assets. That means systematic risks are unanticipated events that affect almost all assets to some degree because the effects are economy wide.

44. Unsystematic Risk: Unsystematic risk is a risk that affects at most a small
number of assets. That means unsystematic risks are unanticipated event that affect single assets or small group of assets.

45. Diversification: Diversification is a risk-reducing strategy which designed to

reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, to company's portfolio. The goal of diversification is to reduce the risk in a portfolio.

46. Beta of the stock: Beta is the amount of systematic risk present in a particular
risky asset relative to that in an average risky asset. Beta tells us how mush systematic risk a particular asset has relative to an average asset.

47. Capital Asset Pricing Model (CAPM): Capital asset pricing model is the
equation of the security market line that showing the relationship between expected return and beta.

48. Stock Capital: Stock capital is an amount of fully paid-up capital or any part of
which can be transferred. This is an investors instrument that signifies his or her ownership position or equity in a corporation.

49. Leverage: Leverage results from the use of fixed-costs or funds to magnify
returns to the firms owner.

50. Operating Leverage: Operating leverage concerned with the relationship

between the firms sales revenue and its earning before interest and tax (EBIT).

51. Financial Leverage: Financial leverage is concerned with the relationship

between the firms earning before interest and tax (EBIT) and common stock earning per share (EPS).

52. Home Made Leverage: The use of personal borrowing to change the overall
amount of financial leverage to which the individual is exposed.

53. Business Risk: The equity risk that comes from the nature of the firms
operating activities.

54. Financial Risk: The equity risk that comes from the financial policy (capital
structure) of the firm.

55. Degree of Operating Leverage (DOL): It is the term used to measure the
operating leverage. It is measured by the percentage change in operating cash flow relative to the percentage change in quantity sold. DOL = % change in EBIT / % change in Sales Functionally we use the following formula: DOL = {Q(P-Vc)} / {Q(P-Vc) Fc} Where, Q = Quantity sales; P = Price; Vc = Veriable Cost; Fc = Fixed Cost

56. Degree of Financial Leverage (DFL): It is the term used to measure the
financial leverage. It is measured by the percentage change in Earning Per Share (EPS) relative to the Percentage change operating cash flow or EBIT. DFL = % change in EPS / % change in EBIT Functionally we used the following formula:

DFL = EBIT / [EBIT I {PD / (1 T)}] Where, I = Interest; PD = Preferred Dividend; T = Tax

57. Degree of Total Leverage (DTL): DTL = DOL X DTL 58. Dividend: A payment made out of a firms earnings to its owners in the form of
either cash or stock. There are three types of Dividend: a. b. c. Stock Dividend Cash Dividend Regular Cash Dividend

59. Home Made Dividend: A customized dividend policy created by individual

investors who undo corporate dividend policy by reinvesting or selling dividends.

60. Flotation Cost: All the relevant cost other than the core cost. 61. Residual Dividend Policy: A policy under which a company pays dividends
only after meeting its investment needs while maintaining a desired / prescribed debt equity ratio.

62. Stock Dividend: A payment made by firm to its owners in the form of stock,
diluting the value of each share outstanding.

63. Stock Split: An increase in a firms shares outstanding without any change in
owners equity.

64. Reverse Split: A decrease in a firms shares outstanding without changing in

owners equity.

65. Stock Repurchase: Is he method used to pay out a firms earnings to its owners,
which provides more preferable tax treatment then dividends. It is a method to pay dividend by repurchasing the outstanding shares by the firm. 66. Optimal Capital Structure: A "best" debt/equity ratio for a company. This is the debt/equity ratio that will minimize the cost of capital, i.e., the cost of financing the company's operations.