Glossary of Finance Terms

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The present value of an annuity of n periods.
Par Value
The face value of a stock or bond.
Parent Company
A holding company; a firm which controls another firm by owning a large block of its stock.
An unincorporated business owned by two or more persons.
Payback Period
The length of time required for an investment's net revenues to cover its cost.
Payment (PMT)
This term designates equal cash flows coming at regular intervals.
Payment Date
The date on which a firm actually mails dividend checks.
Pegged Exchange Rate
Occurs when a country establishes a fixed exchange rate with another major currency; consequently, values of pegged currencies move together over time.
Perfect Hedge
Occurs when the gain or loss on the hedged transaction exactly offsets the loss or gain on the unhedged position.
Performance Shares
Stock which is awarded to executives on the basis of the company's performance.
Permanent Current Assets
Current assets that a firm must carry even at the trough of its cycles.
A stream of equal payments expected to continue forever.
Poison Pill
An action which will seriously hurt a company if it is acquired by another.
Political Risk
Potential actions by a host government which would reduce the value of a company's investment.
A comparison of the actual versus the expected results for a given capital project.
Precautionary Balance
A cash balance held in reserve for random, unforeseen fluctuations in cash inflow and outflows.
Preemptive Right
A provision in the corporate charter or bylaws that gives common stockholders the right to purchase on a pro rata basis new issues of common stock (or convertible securities).
Premium Bond
A bond that sells above its par value; occurs whenever the going rate of interest falls below the coupon rate.
Premium on Forward Rate
The situation when the spot rate is greater than the forward rate.
Present Value (PV)
The value today of a future cash flow or series of cash flows.
Present Value Interest Factor for an Annuity (PVIFAi,n)
The present value interest factor for an annuity of n periods discounted at i percent.
Present Value Interest Factor for i and n (PVIFi,n)
The present value of $1 due n periods in the future discounted at i percent per period.
Price/Earning (P/E) Ratio
The ratio of the price per share to earnings per share; shows the dollar amount investors will pay for $1 of current earnings.
Primary Market
The market in which firms issue new securities to raise corporate capital.
Primary Markets
Markets in which corporations raise capital by issuing new securities.
Prime Rate
A published interest rate charged by commercial banks to large, strong borrowers.
Probability Distribution
A listing of all possible outcomes, or events, with a probability (chance of occurrence) assigned to each outcome.
Production Opportunities
The returns available within an economy from investments in productive (cash-generating) assets.
Professional Corporation (Pro Association)
A type of corporation common among professional that provides most of the benefits of incorporation but does not relieve the participants of malpractice.
Profit Margin on Sales
This ratio measures income per dollar of sales; it is calculated by dividing net income by sales.
Profit Maximization
The maximization of the firm's net income.
Profitability Ratios
A group of ratios which show the combined effects of liquidity, asset management, and debts on operating results.
Progressive Tax
A tax system where the tax rate is higher on higher incomes. The personal income tax in the United States, which goes form 0 percent on the lowest increments of income to 39.6 percent, is progressive.
Project Cost of Capital, kp
The risk-adjusted cost of capital for an individual project.
Promissory Note
A document specifying the terms and conditions of a loan including the amount, interest rate, and repayment schedule.
A document gibing one person the authority to act for another, typically the power to vote share of common stock.
Proxy Fight
An attempt by a person or group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote their shares to place a new management into office.
Proxy Fight
An attempt to gain control of a firm by soliciting stockholders to vote for a new management team.
Publicly Owned Corporation
A corporation that is owned by a relatively large number of individuals who are not actively involved in its management.
Purchasing Power Parity
The relationship where the same products cost roughly the same amount in different countries after taking into account the exchange rate.
Pure Play Method
An approach used for estimating the beta of a project in which a firm (1) identifies several companies whose only business is the product in question, (2) calculates the beta for each firm, and then (3) averages the betas to find an approximation to its own projects beta.
Put Option
An option to sell a share of stock at a certain price within a specified period.

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