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| Question | Answer |
| Payback Period | The length of time before the cumulated stream of forecasted cashflows equals the intial investment |
| Discounted Payback | Future cash flows are discounted prior to calculating the payback period |
| Accounting Rate of Return (ARR) | The ratio of the accounting profit to the investment in the project, expressed as a percentage |
| Internal Rate of Return | The rate of return you recieve by putting your money into a project |
| Long Term Debt Finance (Borrowing) | The concept of borrowing money is to invest in real assets within a business |
| Long Term Debt Finance (Borrowing) | The concept of borrowing money is to invest in real assets within a business |
| Market | Is a place where people 'meet' to buy and sell |
| Financial Market | Is a place where people 'meet' to buy and sell financial products |
| Financial Institutions | Act as an intermediary between buyers and sellers in a financial market |
| Derivatives Market | Trading in financial instruments that are derived from an underlying asset |
| Forward | Is a binding agreement between two parties to exchange specific assets at a specific point in time |
| Future | Similar to a forward, and is traded on a recognised exchange |
| SWAP | Is an agreement between two parties to exchange the cash flows associated to any two underlying assets |
| Risk Seeking | Both parties wish too 'gamble' on their predictions of future interest rate movements |
| Risk Averting | One party wishes to guarantee the return to be received. Other party needs to be a risk taker |
| Convertible Debt | Debt that includes an option. The debt holder has the option to convert the debt into shares |
| Debt with a Warrant | The debt remains. The warrant is a detachable option. Warrant may be sold or excercised |
| Risk | A future return has a variety of possible values. Sometimes measured by standard deviation |
| Asymmetric Information | One party in a negotiation or relationship is not in the same position as other parties, being ignorant of, or unable to observe, some information which is essential to the contracting and decision-making process |
| Cost of Capital | The rate of return that a company has to offer finance providers to induce them to buy and hold a financial security |
| Market Capitalisation | The total value at market prices of the shares in issue for a company (or a stock market, or a sector of the stock market) |
| Capital Market | Where those raising finance can do so by selling financial investments to investors e.g. bonds and shares |
| Money Markets | Wholesale financial markets (those dealing with large amounts) in which lending and borrowing on a short term basis takes place (<1 year) |
| Operational Efficiency | Refers to the cost, speed and reliability of transactions in securities on the exchange |
| Allocational Efficiency | Society has a scarcity of resources and it is important that we find mechanisms which allocate those resources to where they can be most productive |
| Pricing Efficiency | EMH applies to this form of efficiency only |
| Random Walks | The movements in (share) prices are independent on one another; one days price change cannot be predicted by looking at the previous days price changes |
| Weak-Form Efficiency | Share prices fully reflect all the relevant publicly available information. |
| Semi-Strong Form Efficiency | Share prices fully reflect all the relevant publicly available information |
| Strong-Form Efficiency | All relevant info and private info is reflected into the share price |
| Option | A contract giving one party the right, but not the obligation, to buy or sell a financial instrument, commodity or some other underlying asset at a given price, at or a specified date |
| Working Capital | The difference between current assets and current liabilities |
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