Introduction to Finance

Public off ering
Sale of securities to the 
investing public
Purchasing power
Amount of goods and ser-
vices that can be purchased with a unit of money
Purchasing power parity (PPP)
States that a 
country with a relatively higher expected infl a-
tion rate will have its currency depreciate relative 
to a country (or group of countries using a single 
currency) with a relatively lower infl ation rate
Purchasing power risk
Changes in infl ation 
aff ect revenues, expenses, and profi tability
Put option
Contract for the sale of secu-
rities within a specifi c time period and at a 
specifi ed price
Putable bonds (retractable bonds)
Allow 
the investor to force the issuer to redeem the 
bonds prior to maturity
Quantitative easing (QE)
A 
nontraditional 
monetary policy designed to stimulate eco-
nomic activity when conventional monetary 
policy met hods are ineff ective
Random walk
Prices appear to fl uctuate ran-
domly over time, driven by the random arrival 
of new information
Ratio analysis
Financial technique that 
involves dividing various fi nancial statement 
numbers into one another
Real assets
Include the direct ownership of 
land, buildings or homes, equipment, invento-
ries, durable goods, and precious metals
Real rate of interest
Interest rate on a risk-free 
debt instrument when no infl ation is expected
Registered bonds
Bonds issued in the 
United States and for which the issuer knows 
the names of the bondholders, and the interest 
payments are sent directly to the bondholder
Registered traders
Individuals who pur-
chase a seat on the exchange to buy and sell 
stocks for their own account
Regulation Z
Enacts the truth in lending 
section of the Consumer Credit Protection 
Act with the intent to make consumers aware 
of and able to compare costs of alternate 
forms of credit