Term
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Definition
| The commitment of current funds in anticipation of receiving a larger future flow of funds. Investments may take the form of stocks, bonds, real estate, and even rare paintings or old baseball cards. |
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Term
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Definition
| Represents a financial claim on an asset that is usually documented by some form of legal representation. |
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Term
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Definition
| Represents an actual tangible asset that may be seen, felt, held, or collected. |
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Term
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Definition
| A compilation of various investments such as stocks, bonds, or real assets. |
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Term
| Direct equity claims (p.3) |
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Definition
| Represent ownership interests and include common stock as well as other instruments that can be used to purchase common stock, such as warrants and options. |
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Term
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Definition
| Can be acquired through placing funds in investment companies (such as a mutual fund). |
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Term
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Definition
| Represented by debt instruments offered by financial institutions, industrial corporations, or the government. |
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Term
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Definition
| A hybrid form of security combining some of the elements of equity ownership and creditor claims. |
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Term
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Definition
| Represent a contract to buy or sell a commodity in the future at a given price. |
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Term
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Definition
| Measured by the ability of the investor to convert an investment into cash within a relatively short time at its fair market value or with a minimum capital loss on the transaction. |
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Term
| Defined benefit plan (p.8) |
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Definition
| Specifies the amount of the retirement benefit based on income and years of service. Most public employees, such as teachers, firefighters, and police have these types of plans. |
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Term
| Defined contribution plan (p.8) |
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Definition
| Type of retirement plan that usually requires the employee to make contributions out of each paycheck into a retirement fund. |
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Term
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Definition
| Refers to the risk that is associated with the tax code regarding investment income. |
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Term
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Definition
| Focuses on the volatility of operating earnings, and given the cyclical nature of the economy and the stability of the industry, this is a risk that can be measured. The greater the volatility of operating income, the greater the risk. |
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Term
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Definition
| Risk that occurs when a firm uses too much financial leverage (high debt ration) and risks bankruptcy. |
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Term
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Definition
| Risk associated with placing investment funds under the supervision of another individual with assumed expertise in the investing world. Normally associated with mutual funds. |
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Term
| Real rate of return (p.12) |
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Definition
| The return investors require for allowing others to use their money for a given time period. |
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Term
| Anticipated rate of inflation (p.13) |
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Definition
| The level of decrease in purchasing power of our investment that must be added to the real rate of return. |
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Term
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Definition
| Risk associated with a particular type of investment. For some investments, this may be high because of the type of investment it is, industry influences, market perception, or company performance. |
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Term
| Capital Asset Pricing Model (CAPM, p.16) |
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Definition
| Model of displaying the required rate of return based on incorporating all the primary risk factors. Breaks risk down into company risk and market risk. |
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Term
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Definition
| Measures the risk of a security relative to the market. |
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Term
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Definition
| Risk that is associated solely with market fluctuations and cannot be diversified away in a portfolio. |
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Term
| Equity risk premium (p.16) |
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Definition
| Risk premium allocated to the stock market. |
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Term
| Risk-free rate (Rf, p.13) |
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Definition
| A combination of the real rate of return and inflationary considerations that gives us the required return on an investment before explicitly considering risk. |
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