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D076 Finance Skills for Managers > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

The percentage of the principal that a lender charges a borrower for the use of assets

A

Interest Rate

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2
Q

The name for interest rate when used in time value of money calculations

A

Discount Rate

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3
Q

The minimum return or compensation an investor requires in order to invest;

A

Required Rate of Return

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4
Q

The cost to a firm to use an investor’s capital

A

Cost of Capital

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5
Q

The interest earned only on the principal

A

Simple Interest

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6
Q

The interest on the principal plus the interest on earned interest.

A

Compounding Interest

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7
Q

The loss of potential gain from other alternatives when one alternative is chosen.

A

Opportunity Costs

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8
Q

The rate at which the average price level of a basket of chosen goods and services in an economy increases over a period of time.

A

Inflation

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9
Q

The rate at which invested money grows for a certain period of time

A

Nominal Rate

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10
Q

An interest rate that is adjusted to remove the effects of inflation

A

Real Rate

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11
Q

An economic theory developed by Irving Fisher holding that the real interest rate is equivalent to the nominal interest rate minus the expected inflation rate.

A

Fisher Effect

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12
Q

The idea that money that is available at the present time is worth more than the same amount in the future.

A

Time Value of Money (TVM)

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13
Q

The worth of cash flows in terms of the dollar amount in the relative past

A

Present Value

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14
Q

The worth of cash flows in terms of the dollar amount in the relative future.

A

Future Value

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15
Q

Finding a future value given a present value.

A

Compounding

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16
Q

Finding a present value given a future value

A

Discounting

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17
Q

A stream of cash flows of an equal amount paid every consecutive period.

A

Annuity

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18
Q

A series of equal payments made at the end of consecutive periods over a fixed length of time

A

Ordinary Annuity

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19
Q

A series of equal payments made at the beginning of consecutive periods.

A

Annuity Due

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20
Q

A constant stream of identical cash flows that continues forever

A

Perpetuity

21
Q

Risk that is inherent in the economy as a whole and cannot be diversified away; also called systematic risk or undiversifiable risk

A

Market Risk

22
Q

Risk that results from factors at a particular firm and can be reduced through diversification; also called nonsystematic risk or idiosyncratic risk.

A

Firm-specific Risk

23
Q

The probability that changes in interest rates will impact the value of a bond.

A

Interest Rate Risk

24
Q

The probability of a loss resulting from a borrower’s failure to repay a contractual obligation; also called credit risk.

A

Default Risk

25
Q

The potential for the decline in the price of a financial security or an asset relative to the market

A

Price Risk

26
Q

A series of techniques that help reduce the amount of risk a person is exposed to by taking a particular action

A

Risk Reduction

27
Q

A risk management technique that involves dispersing assets geographically instead of concentrating them in one location

A

Risk Separation

28
Q

A risk management technique that involves reducing the amount of risk you are exposed to by transferring that risk to another entity

A

Risk Transfer

29
Q

A decision to take responsibility for a particular risk

A

Risk Retention

30
Q

A way to manage risk by not performing an activity that may carry risk

A

Risk Avoidance

31
Q

Risk that is inherent in the economy as a whole and cannot be diversified away; also called market risk or nondiversifiable risk

A

Systematic Risk

32
Q

A bill issued by the U.S. government as a financial security with no interest and a maturity of less than one year; abbreviated T-bill

A

Treasury Bill

33
Q

A note issued by the U.S. government as a financial security with a fixed interest rate and a short maturity between 1 and 10 years; abbreviated T-note

A

Treasury Note

34
Q

A debt instrument (bond) that is issued by the United States government in order to raise capital

A

Treasury Securities

35
Q

Bonds, bills, and notes issued by the U.S. government; considered to be the highest- quality securities available

A

U.S Treasuries

36
Q

The annual interest rate that is charged for borrowing money or that is earned through investment.

A

Annual Percentage Rate

37
Q

The measure of the relationship between two variables that move in relation to each other.

A

Correlation

38
Q

The stated interest rate of a bond; also known as coupon yield.

A

Coupon Rate

39
Q

The process of “spreading” your money over many different assets.

A

Diversification

40
Q

An issue in the process of deciding between multiple options where no option is completely acceptable from an ethical standpoint.

A

Ethical Dilemma

41
Q

The return over the entire period that an investor owns a financial security.

A

Holding Period Return

42
Q

Risk that results from factors at a particular firm and can be reduced through diversification; also called firm- specific risk or nonsystematic risk

A

Idiosyncratic Risk

43
Q

Risk that is inherent in the economy as a whole and cannot be diversified away; also called market risk or systematic risk

A

Nondiversifiable Risk

44
Q

Risk that results from factors at a particular firm and be reduced through diversification; also called firm-specific risk or idiosyncratic risk

A

Nonsystematic Risk

45
Q

The money gained or lost on an investment over a certain period of time

A

Return

46
Q

The compensation for the amount of risk taken on by investors

A

Risk Premium

47
Q

The rate of return on an investment with no risk

A

Risk-free Rate

48
Q

A measure of dispersion of possible outcomes about the mean

A

Standard Deviation

D076 Finance Skills for Managers (7 decks)

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