Introduction to Finance

Underwriting agreement
Contract in which 
the investment banker agrees to buy securities 
at a predetermined price and then resell them to 
investors
Undistributed profi ts (earnings retained in 
the business)
Profi ts remaining after taxes 
and, in the case of corporations, after the cash 
dividends are paid to stockholders
Unit banking
Exists when a bank can have 
only one full-service offi
ce
Universal bank
Bank that engages in com-
mercial banking and investment banking
Unsecured loan
Loan that is a general claim 
against the assets of the borrower
Unsystematic risk
Risk that can be diversi-
fi ed away as assets are added to a portfolio. Also 
known as fi rm-specifi c risk or industry-specifi c 
risk
Usury
The act of lending money at an exces-
sively high interest rate
Variance
Derived by summing the squared 
deviations and dividing by n – 1
Velocity of money
Measures the rate of 
circulation of the money supply; the average 
number of times each dollar is spent on pur-
chases of goods and services and is calculated 
as nominal GDP (GDP in current dollars) 
divided by M1
Voluntary savings
Savings in the form of 
fi nancial assets held or set aside for use in the 
future
Warehouse receipt
A receipt issued by the 
warehouse indicating inventory is placed in a 
bonded warehouse for safekeeping; items are 
removed as they are paid for

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A
Absolute cost advantages, 524
Acceptances, 511–512
Accommodative function, defined, 86
Account executive, career opportunity, 327
Accounting
accrual concept, 389
firms, conflict of interest (elimination), 408
identity, 393
perspective, financial perspectives 
(comparison), 389
t
practices, problems, 405
principles, 389–391
Accounts payable
calculation, 461–462
debt, 395
Accounts receivable
factoring, 509–511
comparison, 512
t
financing, 508–509
management, 479–482
origin, 395
period, usage, 459
pledging, 508–509
comparison, 512
t
Accredited investors, 306
Activity ratio, 429
Adjustable-rate mortgage (ARM)
change, 203
defined, 183
replacement, 186
Adjustment credit, 90
Administrative inflation, defined, 211
Administrative pressures, 110
Advance factoring, defined, 510
Advisory committees, 80, 81
f,
84
Aftermarket, defined, 302
After-tax salvage value, calculation, 555–556
Agency costs, 590
defined, 407
Agents, defined, 406
Aggregate demand, fiscal policy (impact), 111
Alexander the Great (inflationary period), 207
American depository receipt (ADR)
defined, 326
trading, 326–327
American International Group (AIG), bailout, 
47, 112
American Recovery and Reinvestment Act of 
2009, 109
Amortized loan, 183
defined, 239
Angel investors, survey, 313
Annual coupon payments, usage, 277
Annual credit risk spreads, 281
f
Annualized rates of return, 295–296
Annual percentage rate (APR), 277, 501
defined, 243
effective percentage rate (EAR), difference, 
243
Annual report, defined, 391
Annuity
computational process, 233
defined, 232
future value, 232–235
calculation, example, 232–233
interest rates, 236–238
payments, determination (
See
Periodic 
annuity payments)
present value, 235–237
present value, calculation, 529–530
time requirements, 237–239
Annuity due
defined, 232
interest rates/time requirements, 250–251
APR. 
See
Annual percentage rate
Arbitrage, 315
defined, 141, 337
Arithmetic average annual rates of return, 
344–345
ARM. 
See
Adjustable-rate mortgage
Ask, defined, 317
Asset-based lending (secured lending), 
defined, 508
Asset management, 67–68
ratio, 429
analysis, 429–432
defined, 429
Assets, 63–65.