Glossary of Finance Terms

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Earnings Per Share (EPS)
Net income divided by the number of share of common Stock outstanding.
Economic Value Added
Value added to shareholders by management during a given year.
Effective (Equivalent) Annual Rate (EAR/EFF%)
The annual rate of interest actually being earned, as opposed to the quoted rate. Also called the "equivalent annual rate."
Efficient Markets Hypothesis (EMH)
The hypothesis that securities are typically in equilibrium-that they are fairly priced in the sense that the price reflects all publicly available information on each security.
Equilibrium
The condition under which the expected return on a security is just equal to its required return ^k =k. Also, ^Po = Po, and the price is stable.
Equivalent Annual Annuity (EAA) Method
A method which calculates the annual payments a project would provide if it were an annuity. When comparing projects of unequal lives, the one with the higher equivalent annual annuity should be chosen.
Eurobond
A bond sold in a country other than the one in whose currency the bond is denominated.
Eurodollar
A U.S. dollar deposited in a bank outside the United States.
Ex-Dividend Date
The date on which the right to the current dividend no longer accompanies a stock; it is usually four working day prior to the holder-of-record date.
Exchange Rate
The number of units of a given currency that can be purchased for one unit of another currency.
Exchange Rate Risk
The risk that relates to what the basic cash flows will be worth in the parent company's home currency.
Executive Stock Option
An option to buy stock at a stated price within a specified time period that is granted to an executive as part of his or her compensation package
Expansion Project
A project that is intended to increase sales.
Expectations Theory
A theory which states that the shape of the yield curve depends on investors' expectations about future interest rates.
Expected Rate of Return, ^k
The rate of return expected to be realized from an investment; the weighted average of the probability distribution of possible results.
Expected Rate of Return,^ ks
The rate of return on a common stock that a stockholder expects to receive.
Expected Return on a Portfolio, ^kp
The weighted average of the expected returns on the assets held in the portfolio.
Expected Total Return
The sum of the expected dividend yield and the expected capital gains yield.
Externalities
Effects of a project on cash flows in other parts of the firm.


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