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106 Cards in this Set
- Front
- Back
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Balance Sheet
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financial statement showing a firm's accounting value on a particular date
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Net Working Capital
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current assets less current liablities
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Income Statement
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financial statement summarizing a firm's performance over a period of time
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Noncash Items
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expenses charged against revenues that do not directly affect cash flow, such as depreciation
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Average Tax Rate
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total taxes paid divided by total taxable income
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Marginal Tax Rate
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amount of tax payable on the next dollar earned
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Cash Flow From Assets
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total cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital
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Operating Cash Flow
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cash generated from a firm's normal business activities
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Free Cash Flow
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another name for cash flow assets
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Cash Flow To Creditors
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a firm's interest payments to creditors less net new borrowing
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Cash Flow To Stockholders
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dividends paid out by a firm less net new equity raised
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Sources of Cash
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a firm's activities that generate cash
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Uses of Cash
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a firm's activities in which cash is spent
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Statement of Cash Flows
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a firm's financial statement that summarizes its sources and uses of cash over a specified period
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Common-Size Statement
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a standardized financial statement presenting all items in percentages terms
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Common-Base Year Statement
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a standardized financial statement presenting all items relative to a certain base year
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Financial Ratios
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relationships determined from a firm's financial information and used for comparison purposes
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Du Pont Identity
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popular expression breaking ROE into three parts: operating efficiency, asset use efficiency, and financial leverage
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Standard Industrial Classification (SIC) Code
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a U.S. government code used to classify a firm by its type of business operations
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Future Value (FV)
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the amount an investment is worth after one or more periods
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Compounding
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the process of accumulating interest on an investment over time to earn more interest
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Interest on Interest
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interest earned on the reinvestment of previous interest payments
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Compound Interest
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interest earned on both the initial principal an the interest reinvested from prior periods
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Simple Interest
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interest earned only on the original principal amount invested
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Present Value (PV)
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the current value of future cash flows discounted at the appropriate discount rate
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Discount
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calculate the present value of some future amount
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Discount Rate
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the rate used to calculate the present value of future cash flows
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Discounted Cash Flow (DCF) Valuation
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calculating the present value of a future cash flow to determine its value today
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Annuity
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a level stream of cash flows for a fixed period of time
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Annuity Due
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n annuity for which the cash flows occur at the beginning of the period
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Perpetuity
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an annuity in which the cash flows continue forever
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Consol
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a type of perpetuity
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Stated Interest Rate
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the interest rate expressed in terms of the interest payment made each period
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Effective Annual Rate (EAR)
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interest rate expressed as if it were compounded once per year
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Annual Percentage Rate (APR)
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the interest rate charged per period multiplied by the number of periods per year
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Coupon
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the stated interest payment made on a bond
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Face Value
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the principal amount of a bond that is repaid at the end of the term
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Coupon Rate
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the annual coupon divided by the face value of a bond
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Maturity
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the specified date on which the principal amount of a bond is paid
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Yield To Maturity (YTM)
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the rate required in the market on a bond
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Current Yield
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a bond's annual coupon divided by its price
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Registered Form
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the form of bond issue in which the registrar of the company records ownership of each bond: payment is made directly to the owner of record
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Bearer Form
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the form of bond issue in which the bond is issued without record of the owner's name; payment is made to whomever holds the bond
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Debenture
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an unsecured debt, usually with a maturity of 10 years or more
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Note
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an unsecured debt, usually with a maturity under 10 years
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Sinking Fund
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an account managed by the bond trustee for early bond redemption
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Call Provision
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an agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity
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Call Premium
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the amount by which the call price exceeds the par value of a bond
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Deferred Call Provision
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a call provision prohibiting the company from redeeming a bond prior to a certain date
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Call-Protected Bond
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a bond that, during a certain period, cannot be redeemed by the issuer
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Protective Covenant
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a part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender's interest
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Zero Coupon Bond
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a bond that makes no coupon payments and is thus initially priced at a deep discount
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Bid Price
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the price a dealer is willing to pay for a security
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Asked Price
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the price a dealer is willing to take for a security
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Bid-Ask Spread
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the difference between the bid price and the asked price
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Clean Price
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the price of a bond net of accrued interest; this is the price that is typically quoted
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Dirty Price
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the price of a bond including accrued interest
price the buyer actually pays |
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Real Rates
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interest rates or rates of return that have been adjusted for inflation
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Nominal Rates
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interest rates or rates of return that have not been adjusted for inflation
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Fisher Effect
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the relationship between nominal returns, real returns, and inflation
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Inflation Premium
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the portion of nominal interest rates that represents compensation for expected future inflation
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Interest Rate Risk Premium
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the compensation investors demand for bearing interest rate risk
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Default Risk Premium
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the portion of a nominal interest rate or bond yield that represents compensation for the possibility of default
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Tax ability Premium
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portion of a nominal interst rate or bond yield that represents compensation for unfavorable tax status
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Liquidity Premium
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portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity
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Net Present Value (NPV)
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the difference between an investment's market value and its cost
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Payback Period
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the amount of time required for an investment to generate cash flows sufficient to recover its initial cost
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Discounted Payback Period
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the length of time required for an investment's discounted cash flows to equal its initial cost
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Average Accounting Return (AAR)
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an investment's average net income divided by its average book value
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Internal Rate of Return (IRR)
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the discount rate that makes the NPV of an investment zero
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Net Present Value Profile
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a graphical representation of the relationship between an investment's NPVs and various discount rates
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Multiple Rates of Return
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the possibility that more than one discount rate will make the NPV of an investment zero
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Mutually Exclusive Investment Decisions
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a situation in which taking one investment prevents the taking of another
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Profitability Index (PI)
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the present value of an investment's future cash flows divided by its initial cost
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Incremental Cash Flows
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the difference between a firm's future cash flows with a project and those without the project
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Stand-Alone Principle
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the assumption that evaluation of a project may be based on the project's incremental cash flows
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Sunk Cost
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a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision
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Opportunity Cost
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the most valuable alternative that is given up if a particular investment is undertaken
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Erosion
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the cash flows of a new project that come at the expense of a firm's existing projects
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Pro Forma Financial Statements
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financial statements projecting future years' operations
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Accelerated Cost Recovery System (ACRS)
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a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications
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Depreciation Tax Shield
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the tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate
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Equivalent Annual Cost (EAC)
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the present value of a project's cost calculated on an annual basis
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Risk Premium
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the excess return required from an investment in a risky asset over that required from a risk-free investment
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Variance
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the average squared difference between the actual return and the average return
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Standard Deviation
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the positive square root of the variance
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Normal Distribution
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a symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation
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Geometric Average Return
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the average compound return earned per year over a multi-year period
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Arithmetic Average Return
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the return earned in an average year over a multi-year period
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Efficient Capital Market
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a market in which security prices reflect available information
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Efficient Markets Hypothesis (EMH)
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the hypothesis that actual capital markets, such as the NYSE, are efficient
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Expected Return
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the return on a risky asset expected in the future
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Portfolio
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a group of assets such as stocks and bonds held by an investor
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Portfolio Weight
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the percentage of a portfolio's total value that is in a particular asset
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Systematic Risk
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a risk that influences a large number of assets
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Unsystematic Risk
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a risk that affects at most a small number of assets
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Principle of Diversification
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spreading an investment across a number of assets will eliminate some, but not all, of the risk
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Beta Coefficient
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the amount of systematic risk present in a particular risky asset relative to that in an average risky asset
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Security Market Line (SML)
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a positively sloped straight line displaying the relationship between expected return and beta
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Market Risk Premium
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the slope of the SML
the difference between the expected return on a market portfolio and the risk-free rate |
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Capital Asset Pricing Model (CAPM)
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the equation of SML showing the relationship between expected return and beta
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Cost of Capital
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the minimum required return on a new investment
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Cost of Equity
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the return that equity investors require on their investments in the firm
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Cost of Debt
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the return that lenders require on the firm's debt
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Weighted Average Cost of Capital (WACC)
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the weighted average cost of equity and the after tax cost of debt
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Pure Play Approach
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the use of a WACC that is unique to a particular project, based on companies in similar lines of business
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