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Definition of Residuals
1) Parts of stock returns not explained by the explanatory variable (the market-index return). They
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
an amount or percentage deducted from an equity interest to reflect lack of marketability.
Same as PV, but usually includes a subtraction for an initial cash outlay.
a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.
the value in today’s dollars of cash flows that occur in different time periods.
model for calculating DLOM for minority interests r the discount rate
Part of the return that is not due to systematic influences (market wide influences). In
A merger or consolidation in which an acquirer purchases the acquiree's stock.
Publicly traded issues that may be collateralized by mortgages and MBSs.
A bond covenant that specifies certain actions the firm must take.
Money after-tax rate of return minus the inflation rate.
The second-largest stock exchange in the United States. It trades
For investment companies, the management fee and "other expenses,"
The annual rate of return that when compounded t times, would have
Arithmetic mean return.
Arithmetic mean return
An average of the subperiod returns, calculated by summing the subperiod returns
Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
markets in which the prevailing price is determined through the free interaction of
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average accounting return
The average project earnings after taxes and depreciation divided by the average
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
Average (across-day) measures
An estimation of price that uses the average or representative price of a
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
An investment company that invests in stocks and bonds. The same as a balanced mutual fund.
Balanced mutual fund
This is a fund that buys common stock, preferred stock and bonds. The same as a
Any market in which prices are in a declining trend.
Beta (Mutual Funds)
The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
Beta equation (Mutual Funds)
The beta of a fund is determined as follows:
Beta equation (Stocks)
The beta of a stock is determined as follows:
An illegal market.
Designing a portfolio so that its performance will match the performance of some bond index.
bonds issued by emerging countries under a debt reduction plan.
A market where an intermediary offers search services to buyers and sellers.
Any market in which prices are in an upward trend.
The foreign market in the United Kingdom.
Buying the index
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
The value of assets that can be converted into cash immediately, as reported by a company. Usually
A forecasted summary of a firm's expected cash inflows and cash outflows as well as its
Cash and carry
Purchase of a security and simultaneous sale of a future, with the balance being financed
Cash and equivalents
The value of assets that can be converted into cash immediately, as reported by a
The actual physical commodity, as distinguished from a futures contract.
Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash
A company that pays out all earnings per share to stockholders as dividends. Or, a company or
In general, the time between cash disbursement and cash collection. In net working capital
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
The provision of some futures contracts that requires not delivery of underlying assets but
An incentive offered to purchasers of a firm's product for payment within a specified time
A dividend paid in cash to a company's shareholders. The amount is normally based on
A short-term security that is sufficiently liquid that it may be considered the financial
In investments, it represents earnings before depreciation , amortization and non-cash charges.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
Cash flow per common share
cash flow from operations minus preferred stock dividends, divided by the
Cash flow time-line
Line depicting the operating activities and cash flows for a firm over a particular period.
Cash-flow break-even point
The point below which the firm will need either to obtain additional financing
Cash management bill
Very short maturity bills that the Treasury occasionally sells because its cash
Also called spot markets, these are markets that involve the immediate delivery of a security
A public equity issue that is sold to all interested investors.
The proportion of a firm's assets held as cash.
Cash settlement contracts
Futures contracts, such as stock index futures, that settle for cash, not involving
A transaction where exchange is immediate, as contrasted to a forward contract, which
Temporary investments of currently excess cash in short-term, high-quality
An amount the insurance company will pay if the policyholder ends a whole life
Refers to a situation where a firm runs out of cash and cannot readily sell marketable securities.
An investment company that sells shares like any other corporation and usually does not
Assets than can be repossessed if a borrower defaults.
Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on
Collateralized mortgage obligation (CMO)
A security backed by a pool of pass-throughs , structured so that
An agreement between two or more countries that permits the free movement of capital
These are securities that represent equity ownership in a company. Common shares let an
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned
Common stock market
The market for trading equities, not including preferred stock.
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
Related: Unsystematic risk
Complete capital market
A market in which there is a distinct marketable security for each and every
The length of the time period (for example, a quarter in the case of quarterly
he written statement that follows any "trade" in the securities markets. Confirmation is issued
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a
Continuous random variable
A random value that can take any fractional value within specified ranges, as
bonds that can be converted into common stock at the option of the holder.
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder.
Corner A Market
To purchase enough of the available supply of a commodity or stock in order to
Debt obligations issued by corporations.
Cost of funds
Interest rate associated with borrowing money.
The length of time for which the customer is granted credit.
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the
Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely
High-coupon bonds that sell at only at a moderate premium because They are callable at a
A market where traders specializing in particular commodities buy and sell assets for their
The market for trading debt instruments.
markets for derivative instruments.
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