Introduction to Finance

Par value (face value)
Principal amount of 
a loan or bond that the issuer is obligated to 
repay at maturity
Participating preferred stock
Allows 
pre-
ferred share holders to receive a larger dividend 
under certain conditions when common share-
holder dividends increase
Partnership
A form of business organiza-
tion that exists when two or more persons own 
a business operated for profi t
Payback period method
Determines the 
time in years it will take to recover, or pay 
back, the initial investment in fi xed assets
Pecking order hypothesis
A theory that 
states managers prefer to use additions to 
retained earnings to fi nance the fi rm, then debt, 
and (as a fi nal resort) new equity
Pension funds
Receive contributions from 
employees and/or their employers and invest 
the proceeds on behalf of the employees 
Personal consumption expenditures (PCE)
Expenditures by individuals for durable goods, 
nondurable goods, and services
Personal fi nance
Study of how individu-
als prepare for fi nancial emergencies, protect 
against premature death and the loss of prop-
erty, and accumulate wealth over time
Personal saving
Savings of individuals 
equal to personal income less personal current 
taxes less personal outlays 
Pledging (pledge)
Obtain a short-term loan 
by using accounts receivable as collateral
Poison pills
Provisions in a corporate charter 
that make a corporate takeover more unattractive
Political risk
The risk associated with the 
possibility that a national government might con-
fi scate or expropriate assets held by foreigners
Portfolio
Any combination of fi nancial assets 
or investments