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Glosary of acc501

Glosary of acc501

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Glossary of ACC501

Capital Market Line : Efficient set, of all portfolios, that provides the investor with the

best possible investment opportunities when a risk-free asset is available. It describes the

equilibrium risk-return relationship for efficient portfolios, where the expected return is a

function of the risk-free interest rate, the expected market risk premium, and the

proportionate risk of the efficient portfolio to the risk of the market portfolio.

Carrying costs : Costs of holding a commodity from one time period to another.

Cash Flow : Payment (cash outflow) or receipt (cash inflow) of money.

Certificate of deposit : In this context, a marketable fixed rate debt instrument issued by a

bank in exchange for a deposit of funds.

Compound Interest : Interest calculated each period on the principal amount and on any

interest earned on the investment

up to that point.

Compound Option : Option on an option (e. g. an option to buy an option).

Conglomerate Takeover : Takeover of a target company in an unrelated type of

business.

Consistency Principle : In applying the NPV model, the net cash flows in the

numerator should be defined and measured in a way that is consistent with the

measurement of the discount rate in the denominator.

Constant Chain of Replacement Assumption : May be used to evaluate projects of

unequal lives; in this case, each project is assumed to be replaced at the end of its

economic life by an identical project.

Consumer Credit : Credit extended to individuals by suppliers of goods and services,

or by financial institutions through credit cards.

Contingent Claim : Asset whose value depends on the value of some other asset.

Conversion Ratio : Relationship that determines how many ordinary shares will be

received in exchange for each convertible or converting security when the conversion

occurs.

Corporate Raiders : Aggressive corporate or individual investors who purchase a

company’s shares with the intention of achieving a controlling interest and replacing the

existing management.

Cost of Capital : Minimum rate of return needed to compensate suppliers of capital

for committing resources to an investment.

Coupons : Fixed interest payments made on bonds and debentures.

Covenant : Provision in a loan agreement to protect lenders’ interests by requiring

certain actions to be taken and others refrained from.

Credit Foncier Loan : Type of load that involves regular repayments which include

principal and interest.

Credit Risk : Possibility of loss because a party fails to meet its obligations.

Cross Rates : Exchange rate between two currencies derived from the exchange rates

between the currencies and a third currency.

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Cum Dividend Period : Period during which the purchaser of a share is qualified to

receive a previously announced dividend. The cum dividend period ends on the ex-

dividend date.

Cum Rights : When shares are traded cum rights the buyer is entitled to participate in

the forthcoming rights issue.

Currency Swap : Simultaneous borrowing and lending operation in which two

parties initially exchange specific amounts of two currencies at the spot rate. Interest

payments in the two currencies are also exchanged and the parties agree to reverse the

initial exchange after a fixed term at a fixed exchange rate.

Current Assets : Cash, inventory, accounts receivable and other assets that will

normally be converted into cash within a year.

Current Liabilities : Debt or other obligations due for payment within a year.

Drawee : The party upon whom an order, draft, check or bill of exchange is drawn.

Equivalent Annual Value Method : Involves calculating the annual cash flow of an

annuity that has the same life as the project and whose present value equals the net

present value of the project.

Eurobond : Medium to long-term international bearer security sold in countries other

than the country of the currency in which the bond is denominated.

Euronote : Short-term note sold in countries other than the country of the currency in

which it is denominated.

Event Study : Research method that analysis the behaviour of a security's price around

the time of asignificant even such as the public announcement of the company's profit.

Exchange Risk : Variability of an entity's value that is due to changes in exchange

rates.

Ex-Dividend Date : The date on which a share begins trading ex-dividend. A share

purchases ex-dividend does not include a right to the forthcoming dividend payment.

Exercise Price : Fixed Price at which an underlying asset can be traded, pursuant

to the terms of an option contract; also known as strike price.

Expetations Theory : Of the term structure is that interest rates are set such that

investors in bonds or other debt securities can expect, on average, to achieve the same

return over any future period, regardless of the security in which they invest.

Ex-rights Date : Date on which a share begins trading ex-rights. After this date a

share does not have attached to it the right to purchase any additional share(s) on the

subscription date.

Face Value : Sum promised to be paid in the future on a debt security, such as a

promissory note or a bill of exchange.

Factor : Financier who provides funds on the security of the borrower's accounts

receivable.

Factoring : Sale of a company's accounts receivable at a discount to a financial

institution.

Factoring with Recourse : Facotoring (or invoice discounting) agreement under

which the factor is reimbursed by the selling company if the debtor defaults.

Finance Lease : Long-term non-cancellable lease that effectively transfers the risks

and benefits of ownership of an asset from the lessor to the lessee.

Financial Contract : Arrangement, agreement or investment that produces cash flows.

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Glossary of ACC501 Capital Market Line : Efficient set, of all portfolios, that provides the investor with the best possible investment opportunities when a risk-free asset is available. It describes the equilibrium risk-return relationship for efficient portfolios, where the expected return is a function of the risk-free interest rate, the expected market risk premium, and the proportionate risk of the efficient portfolio to the risk of the market portfolio. Carrying costs : Costs of holding a commodity from one time period to another. Cash Flow : Payment (cash outflow) or receipt (cash inflow) of money. Certificate of deposit : In this context, a marketable fixed rate debt instrument issued by a bank in exchange for a deposit of funds. Compound Interest : Interest calculated each period on the principal amount and on any interest earned on the investment up to that point. Compound Option : Option on an option (e. g. an option to buy an option). Conglomerate Takeover : Takeover of a target company in an unrelated type of business. Consistency Principle : In applying the NPV model, the net cash flows in the numerator should be defined and measured in a way that is consistent with the measurement of the discount rate in the denominator. Constant Chain of Replacement Assumption : May be used to evaluate projects of unequal lives; in this case, each project is assumed to be replaced at the end of its economic life by an identical project. Consumer Credit : Credit extended to ind ...
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