Reviewer in Financial Management 1
TERMS:
1. Required Return – return necessary to induce an individual to make an investment 2. Risk – possibility loss; the uncertain that the anticipated return will not be achieved 3. Diversifiable Risk – risk associated with individual events that affect a particular asset: • Firm – specific risk that’s reduced through the construction of diversified portfolios 4. Business Risk – risk associated with the nature of a business 5. Financial Risk – risk associated with the types of financing used to acquire assets 6. Non-diversifiable risk (systematic risk) – risk associated with fluctuations in securities prices and other non-firm-specific factors; market risk that is not reduced through the construction of diversified portfolios 7. Market risk – risk associated with fluctuations in securities prices 8. Interest rate risk – risk associated with changes in interest rates 9. Reinvestment rate risk – the risk associated with reinvesting earnings on principal at a lower rate than was initially earned 10. Purchasing power risk – uncertainty that future information will erode the purchasing power of assets and income 11. Exchange rate risk – risk of loss from charges in the value of foreign currencies 12. Standard deviation – measure of dispersion around an average value; a measure of risk 13. Beta Coefficient – index of systematic risk; measure of volatility of a stock’s return relative to the market return 14. Portfolio risk – total risk associated with owning a portfolio; sum of systematic and unsystematic risk 15. Capital Asset Pricing Model (CAPM) – model used in the valuation of an asset that specifies the required return for different level of risk 16. Common stock – security representing ownership in a corporation: owners have a final claim on the firm’s assets and earnings after the firm has met its obligation to creditors and preferred stockholders 17. Board of Directors (BOD) – body elected
1. Required Return – return necessary to induce an individual to make an investment 2. Risk – possibility loss; the uncertain that the anticipated return will not be achieved 3. Diversifiable Risk – risk associated with individual events that affect a particular asset: • Firm – specific risk that’s reduced through the construction of diversified portfolios 4. Business Risk – risk associated with the nature of a business 5. Financial Risk – risk associated with the types of financing used to acquire assets 6. Non-diversifiable risk (systematic risk) – risk associated with fluctuations in securities prices and other non-firm-specific factors; market risk that is not reduced through the construction of diversified portfolios 7. Market risk – risk associated with fluctuations in securities prices 8. Interest rate risk – risk associated with changes in interest rates 9. Reinvestment rate risk – the risk associated with reinvesting earnings on principal at a lower rate than was initially earned 10. Purchasing power risk – uncertainty that future information will erode the purchasing power of assets and income 11. Exchange rate risk – risk of loss from charges in the value of foreign currencies 12. Standard deviation – measure of dispersion around an average value; a measure of risk 13. Beta Coefficient – index of systematic risk; measure of volatility of a stock’s return relative to the market return 14. Portfolio risk – total risk associated with owning a portfolio; sum of systematic and unsystematic risk 15. Capital Asset Pricing Model (CAPM) – model used in the valuation of an asset that specifies the required return for different level of risk 16. Common stock – security representing ownership in a corporation: owners have a final claim on the firm’s assets and earnings after the firm has met its obligation to creditors and preferred stockholders 17. Board of Directors (BOD) – body elected