Glossary of Finance Terms

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The discount rate which forces the PV of a project's inflows to equal the PV of its costs.
Improper Accumulation
Retention of earnings by a business for the purpose of enabling stockholders to avoid personal income taxes.
Income Bond
A bond that pays interest only if the interest is earned.
Income Statement
A statement summarizing the firm's revenues and expenses over an accounting period, generally a quarter or a year.
Incremental Cash Flow
The net cash flow attributable to an investment project.
A formal agreement between the issuer of a bond and the bondholders.
Independent Projects
Projects whose cash flows are not affected by the acceptance or nonacceptance of there projects.
Indexed (Purchasing Power) Bond
A bond that has interest payments based on an inflation index so as to protect the holder from inflation.
The tendency of prices to increase over time.
Inflation Premium (IP)
A premium equal to expected inflation that investors added to the real risk-free rate of return.
A cash receipt.
Information Content (Signaling) Hypothesis
The theory that investors regard dividend changes as signals of management's earnings forecasts.
Initial Public Offering (IPO) Market
The market consisting of stocks of companies that are in the process of going public.
Interest Rate Parity
Specifies that investors should expect to earn the same return in all countries after adjusting for risk.
Interest Rate Risk
The risk of capital losses to which investors are exposed because of changing interest rates.
Interest Rate Risk
The risk of a decline in a bond's price due to an increase in interest rates.
Internal Rate of Return (IRR) Method
A method of ranking investment proposal using the rate of return on an investment, calculated by finding the discount rate that equates the present value of future cash inflow s to the project's cost.
Intrinsic Value,^Po
The value of an asset that, in the mind of a particular investor, is justified by the facts;^Po may be different from the asset's current market price, its book value, or both.
Inventory Turnover Ratio
The ratio calculated by dividing sales by inventories.
Inverse Floater
A note in which the interest paid moves counter to market rates.
Inverted ("Abnormal") Yield Curve
A downward-sloping yield curve.
Investment Banking House
An organization that underwrites and distributes new investment securities and helps businesses obtain financing.
Investment Grade Bonds
Bonds rated triple-B or higher; many banks and other institutional investors are permitted by law to hold only investment grade bond.
Investment Opportunity Schedule (IOS)
A graph of the firm's investment opportunities ranked in order of the projects' rates of return.
Investment Opportunity Schedule (IOS)
A graph of the firm's investment opportunities ranked in order of the projects' rates of return.

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