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FIN 370 - Week 1 Individual Assignment

Pedro Reyes FIN/370


Week 1 Individual Assignment

Resource: Financial management: Principles and applications


Define the following terms and identify their roles in finance:
Finance - The science of funds management. Finance includes saving money and often
includes lending money. The field of finance deals with the concepts of time, money, risk and
how they are interrelated. Finance also deals with how money is spent and budgeted.
Efficient market - A market in which the values of all assets and securities at any point in time
reflect all available public information. In order to understand what causes price changes in stock
prices and how securities are valued or priced in the financial markets, it is necessary to have an
understanding of efficient markets
Primary market - A market in which new securities are traded. This is the only time that the
issuing firm actually receives money for its stock. There are two different types of offerings in
the primary markets: initial public offerings and seasoned new issues or primary offerings.
Secondary market - Once newly issued stock is in the publics hands, it then begins trading in the
secondary market. Securities that have previously been issued and bought are traded in the
secondary market

FIN 370 - Week 1 Individual Assignment

Risk - The potential that a chosen action or activity will lead to a loss. Investors sometimes
choose to put their money in risky investments because these investments offer higher expected
returns. The more risk an investment has, the higher will be its expected return.
Security - A fungible, negotiable financial instrument representing financial value. Securities can
be traded within markets such as primary and secondary markets.
Stock - Represents the original capital paid into or invested in the business by its founders. It
serves as a security for the creditors of a business because it cannot be withdrawn to the
detriment of the creditors. Stock is distinct from the property and the assets of a business which
may fluctuate in quantity and value. The purpose of businesses is to maximize the market value
of existing shareholders common stock.
Bond - A type of debt or a long-term promissory note, issued by the borrower, promising to pay
its holder a predetermined and fixed amount of interest each year. Bonds provide the borrower
with external funds to finance long-term investments
Capital - Money used by entrepreneurs and businesses to buy what they need to make their
products or provide their services.
This refers to the funds provided by lenders (and investors) to businesses to purchase real capital
equipment for producing goods/services.
Debt Anything owed or assets owed. Debt is created when a creditor lends a sum of assets to a
debtor. Debt is usually granted with expected repayment plus interest.
Yield - Describes the amount in cash that returns to the owners of a security. Yield applies to
various stated rates of return on stocks, bonds and other investment type insurance products.

FIN 370 - Week 1 Individual Assignment

Rate of return - The ratio of money gained or lost on an investment relative to the amount of
money invested. The amount of money gained or lost may be referred to as interest, profit/loss,
gain/loss, or net income/loss. This is also known as return on investment (ROI).
Return on investment - The ratio of money gained or lost on an investment relative to the amount
of money invested. The amount of money gained or lost may be referred to as interest,
profit/loss, gain/loss, or net income/loss. This is also known as the rate of return (ROR)
Cash flow - The movement of cash into or out of a business, project, or financial product.
Measurement of cash flow can be used for calculating other parameters that give information on
a company's value and situation.