Glossary of Finance Terms

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Marginal Cost of Capital (MCC)
The cost of obtaining another dollar of new capital; the weighted average cost of the last dollar of new capital raised.
Marginal Investor
A representative investor whose actions reflect the beliefs of those people who are currently trading a stock. It is the marginal investor who determines a stock's price.
Marginal Tax Rate
The tax rate applicable to the last unit of a person's income.
Market Portfolio
A portfolio consisting of all stocks.
Market Price Po
The price at which a stock sells in the market.
Market Risk
That part of a security's risk that cannot be eliminated by diversification.
Market Risk Premium, RPM
The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk.
Market Value Added (MVA)
The difference between the market value of equity and the amount of equity capital that investors supplied.
Market Value Ratios
A set of ratios that relate the firm's stock price to its earnings and book value per share.
Market, or Beta, Risk
That part of a project's risk that cannot be eliminated by diversification; it is measured by the project's beta coefficient.
Market/Book (M/B) Ratio
The ratio of a stock's market price to its book value.
Marketable Securities
Securities that can be sold on short notice.
Maturity Date
A specified date on which the par value of a bond must be repaid.
Maturity Matching, or "Self-Liquidating," Approach
A financing policy that matches asset and liability maturites. This is a moderate policy.
Maturity Risk Premium (MRP)
A premium which reflects interest rate risk.
The combination of two firms to form a single firm.
Moderate Current Asset Investment Policy
A policy that is between the relaxed and restricted policies.
Modified IRR (MIRR)
The discount rate at which the present value of a project's cost is equal to the present value of its terminal value, where the terminal value is found as the sum of the future values of the cash inflows, compounded at the firm's cost of capital.
Money Market Fund
A mutual fund that invests in short-term, low-risk securities and allows investors to write checks against their accounts.
Money Markets
Then financial markets in which funds are borrowed or loaned for short periods (less than one year).
Monte Carlo Simulation
A risk analysis technique in which probable future events are simulated on a computer generating estimated rates of return and risk indexes.
Mortgage Bond
A bond backed by fixed assets. First mortgage bonds are senior in priority to claims of second mortgage bonds.
Multinational, or Global Corporation
A firm that operates in an integrated fashion in a number of countries.
Multiple IRRs
The situation where a project has two or more IRRs.
Municipal Bonds
Bonds issued by state and local governments.
Mutually Exclusive Projects
A set of projects where only one can be accepted.
marginal Cost of Capital (MCC) Schedule
A graph that relates the firm's weighted average cost of each dollar of capital to the total amount of new capital raised.

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