117 Glossary of Key Terms

bond returns

sums the periodic interest payments and the change in bond price in a given period and divides by the bond price at the beginning of the period

commercial paper (CP)

a short-term, unsecured security issued by corporations and financial institutions to meet short-term financing needs such as inventory and receivables

debenture

a common type of unsecured bond issued by a corporation

indenture

legal term for a bond contract

inflation

a general increase in prices and a reduction in purchasing power; expected rate is a key component of interest rates

initial public offering (IPO)

the first time a firm offers stock to the public

mortgage bond

bond issued by a corporation using a real asset, such as property or buildings, to guarantee it

municipal bonds (munis)

bonds issued by a local government, territory, or agency; generally used to finance infrastructure projects

negotiable certificates of deposit (NCDs)

large CDs issued by financial institutions; redeemable at maturity but can trade prior to maturity in a broad secondary market

primary market

market for new securities

seasoned equity offering (SEO)

a method used by new IPOs to raise capital by offering additional shares of stock to the public

secondary market

market for used securities

shelf registration

part of Securities and Exchange Commission (SEC) Rule 415; allows a company to register with the SEC to issue new shares but allows up to two years before issuing the shares

special purpose acquisition companies (SPACs)

a special form of IPO

stock returns

sums the periodic dividend payments plus the change in stock price in a given period divided by the stock price at the beginning of the period

total returns

the sum of all cash flows received from an investment; includes periodic cash flows plus price appreciation or price depreciation

Treasury bills (T-bills)

short-term debt instruments issued by the federal government and maturing in a year or less

Treasury bonds

government debt instruments with maturities of 20 or 30 years

Treasury notes (T-notes)

government debt instruments with maturities of 2, 3, 5, 7, or 10 years

Attribution:

This chapter is from “Principles of Finance”  https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.

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