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Definition
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Term
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Definition
| the tendency for a particular measure of performance, such as percentage rate of return, to revert to its historical average return |
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Definition
| states that the changes in stock prices are random |
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| efficient capital markets (ECM) hypothesis |
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Definition
| states that the stock market is brutally efficient; current stock prices reflect all publicly available info; and stock prices react completely, correctly, and almost instantaneously to incorporate the recept of new info |
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| = current stock price * amount shares outstanding = total value of the common stock of a company |
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| goal of creating shareholder value |
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Definition
| maximize the market value of the existing owners' equity |
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Definition
| process of planning and managing a firm's long-term investments in projects and ventures |
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| goal of the capital budgeting decision |
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Definition
| maximize the net present value of the investments that are financed by the firm's capital budget |
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Definition
| the firm's short term assets, such as accounts receivable and inventory, and its short-term liabilities, such as loans due within one yr and accounts payable that are owed to suppliers |
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| goal of working capital mgmt |
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Definition
| minimize the cost of maintaining net working capital position of the company |
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Definition
| the firm's specific mixture of long-term debt and equity that it uses to finance its operations and investments |
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| goal of capital structure |
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Definition
| to minimize the weighted average cost of capital of the company |
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Definition
| dividing investment funds among different asset classes |
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Definition
| to spread ones wealth among a member of different investments and asset classes |
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| portfolios that are designed with the help of computer modeling |
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Definition
| represents risk in the stock market |
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Definition
| risk inherent to a particular stock due to decisions made by a corporation relative to the industry in which it operates |
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| modern portfolio theory (MPT) |
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Definition
| efficient cap markets, random walk hypothesis, and capital asset pricing model form the cornerstone of this |
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Term
| capital asset pricing model (CAPM) |
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Definition
| theory about the pricing of assets and the trade-off between the risk of the asset and the expected returns associated with it. 2 types of risk associated w/ a stock: unsystematic/firm-specific and market/systematic risk measure by firm's beta |
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Definition
| where the supply and demand curve intersect. supply = potential sellers, demand = potential buyers |
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| department that is responsible for distributing info about the company to investors and the media |
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Definition
| buy stock b/c its price has risen due to short term demand. sells stock b/c price has fallen due to short term supply |
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| working capital mgmt. ?'s to ask |
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Definition
how much cash/inventory should firm keep on hand?
what credit terms are appropriate for its p/s?
how and where will the firm obtain any short-term financing? |
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| capital structure ?'s to ask |
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Definition
what is the least expensive source of funds?
how much should we borrow? |
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Definition
| brokerage commissions, sales loads, fees, redemption fees when you purchase/sell a mutual fund, yearly asset mgmt. fees |
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Definition
| form of compensation for investors who tolerate the extra risk, compared to that of a risk free asset, in a given investment |
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