investment
Commitment of current resources in the expectation of deriving greater resources in the future
real assets
Assets used to produce goods and services
financial assets
Claims on real assets or the income generated by them
fixed income (debt) securities
Pay a specified cash flow over a specific period
equity
An ownership share in a corporation
derivative securities
Securities providing payoffs that depend on the values of other assets
asset allocation
Allocation of an investment portfolio across broad asset classes
security selection
Choice of specific securities within each asset class
agency problems
Conflicts of interest between managers and stockholders
security analysis
Analysis of the values of securities
risk-return trade-off
Assets with higher expected returns entail greater risk
passive management
Buying and holding a diversified portfolio without attempting to identify mispriced securities
active management
Attempting to identify mispriced securities or to forecast broad market trends
financial intermediaries
Institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers
investment companies
Firms managing funds for investors. An investment company may manage several mutual funds
primary market
A market in which new issues of securities are offered to the public
secondary market
Previously issued securities are traded among investors
venture capital
Money invested to finance a new firm
private equity
Investments in companies that are not traded on a stock exchange
securitization
Pooling loans into standardized securities backed by those loans, which can then be traded like any other security
systematic risk
Risk of breakdown in the financial system, particularly due to spillover effects from one market into others
money markets
Include short term, highly liquid, and relatively low risk debt instruments
treasury bills
Short term government securities issued at a discount from face value and returning the face amount at maturity
certificate of deposit
A bank time deposit
commercial paper
Short term unsecured debt issued by large corporations
bankers' acceptance
An order to a bank by a customer to pay a sum of money at a future date
eurodollars
Dollar dominated deposits at foreign banks or foreign branches of American banks
repurchase agreement
Short term sales of government securities with an agreement to repurchase the securities at a higher price
federal funds
Funds in the accounts of commercial banks at the Federal Reserve Bank
LIBOR
Lending rate among banks in the London market
treasury notes or bonds
Debt obligations of the federal government with original maturities of one year or more
municipal bonds
Tax exempt bonds issued by state and local governments
corporate bonds
Long term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity
common stocks
Ownership shares in a publicly held corporation. Shareholders have voting rights and may receive dividends
preferred stock
Nonvoting shares in a corporation, usually paying a fixed stream of dividends
price weighted average
An average computed by adding the prices of the stocks and dividing by a divisor
market value weighted index
Index return equals the weighted average of the returns of each component security, with weights proportional to outstanding market value
equally weighted index
An index computed from a simple average of returns
derivative asset
A security with a payoff that depends on the prices of other securities
call option
The right to buy an asset at a specified price on or before a specified expiration date
put option
The right to sell an asset at a specified exercise price on or before a specified expiration date
futures contract
Obliges traders to purchase or sell an asset at an agreed upon price at a specified future date