Introduction to Finance

Premium bond
Bond that is selling in excess 
of its par value
Present value
Amount or value today of a 
savings or an investment
Primary deposit
The deposit of a check 
drawn on the Fed; it adds new reserves to the 
bank where deposited and to the banking system 
Primary markets
Where the initial off er-
ing or origination of debt and equity securities 
takes place 
Primary reserves
Vault cash and deposits 
held at other depository institutions and at 
Federal Reserve banks
Prime mortgage
A home loan to a borrower 
with relatively high creditworthiness indicat-
ing a relatively high likelihood that mortgage 
payments will be made when due
Prime rate
Interest rate charged by banks 
for short-term unsecured loans to a bank’s 
highest-quality (most creditworthy) business 
customers
Principal-agent problem
A problem in cor-
porate governance in which confl ict of interest 
occurs between the principals and agents
Principals
Owners of the fi rm
Private placement
Sale of securities to a 
small group of private investors
Processing fl oat
Delays in processing incom-
ing payments from customers by the receiving 
fi rm
Profi tability index (PI) (benefi t/cost ratio)
ratio between the present values of the infl ows 
and the outfl ows
Profi tability ratios
Indicate the fi rm’s ability 
to generate returns on its sales, assets, and equity
Program trading
Technique for trading 
stocks as a group rather than individually; a 
minimum of 15 diff erent stocks with a minimum 
value of $1 million are traded
Proprietorship (sole proprietorship)
A 
business venture owned by an individual who 
personally receives all profi ts and assumes all 
responsibility for the debts and losses of the 
business
Prospectus
Highly regulated document that 
details the issuer’s operations and fi nances and 
must be provided to each buyer of a newly issued 
security