Define and identify the role in finance
Financial management is concerned with maintenance and creation of economic value or wealth. Role is maximization of share holder wealth, by which it mean maximization the price of existing common stock. • Efficient market is characterized by a large number of profit driven individuals who act independently. In addition, new information regarding securities arrives in the market in a random manner. Given this setting, investors adjust to new information immediately and buy and sell the security until they feel the market price correctly reflects the new information. • Primary market is a market in which new, as opposed to previously issued, securities are traded. This is the only time that the issuing firm actually receives money for its stock. • Secondary market
Once the newly issued stock is in the public’s hand, it then begins trading in the secondary market. • Risk
Investment alternatives have different amounts of risk and expected returns. Investors sometimes choose to put their money in risky investments because these investments offer higher expected return. The more risk an investment has, the higher will be its expected return. • Security
Securities are trade able interests representing financial value. They are often represented by a certificate. They include shares of corporate stock or mutual fund, bonds issued by corporations or governmental agencies, stock options or other options, other derivative securities, limited partnership units, and various other formal "investment instruments." Banknotes, checks, and some bills of exchange do not fall into this category. • Stock
Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation's earnings and assets. • Bond
A bond is a fixed interest financial asset issued by governments, companies, banks, public utilities and other large entities. Bonds pay...