Introduction to Finance

Participating preferred stock, defined, 269
Partnership, 384, 386–387
defined, 387
liability risks, 387
life, 386
Par value (face value)
defined, 255, 267
excess, 279
Paulson, Henry, 112
Payables, sales increase (impact), 462
t
Pay-as-you-go progressive income tax, 111
Payback period, 527, 537
calculation, 537
method, defined, 537
Payment
balance, defined, 151–152
electronic forms, 95
Pecking order hypothesis, defined, 591
Pension fund payments, 179
Pension funds, defined, 50
Percentage of sales technique, 442–443
Percentage return, calculation, 343–344
Percent annual rate, calculation, 65
Periodic annuity payments
determination, 239–241
annual payments, involvement, 
239–240
real estate mortgage loans, monthly 
payments (involvement), 240–241
financial calculator solution, 239
spreadsheet solution, 239
table-based solution, 239–240
Periodic equal payment (PMT), 233, 275
Periodic interest charge 
(r),
243
Perpetuities, maturity dates, 255
Perpetuity, defined, 285
Personal consumption expenditures (PCE), 
defined, 167
Personal consumption expenditures (PCE), 
GDP percentage, 167
Personal current taxes, change, 175
Personal finance
defined, 6
planning, career opportunities, 353
Personal financial plan, development, 180
Personal financial planning, 14
Personal income, components, 175
Personal investment decisions, making, 7
Personal saving, 174–176
calculation, 174
defined, 174
historical rates in the United States, 175
t
NPER (Excel) function, usage, 238
NPV. 
See
Net present value
NWC recovery, 555–556
O
Odd lot, defined, 319
Offer price, defined, 300
Office of the Comptroller of the Currency 
(OCC), 93
Office of Thrift Supervision (OTS), 93
S&L regulation, 60
One-bank holding companies (OBHCs), 62
One-year government interest rates, 157
One-year investment, present value level, 
226–227
Open-ended funds (mutual funds), 358
Open-end mortgage bond, defined, 262
Open-market operations, 90–91, 123, 224
defined, 91
Federal Reserve Act of 1913, impact, 91
Operating cash flows, example, 544–545
Operating cycle, 457, 459–460
calculation, 459
defined, 457
diagrams, 458
f
length, determination, 458–459
timeline, depiction, 457
Operating effects, financial leverage effects 
(combination), 584–588
Operating leverage, degree, 447
Operating profit margin, calculation, 436
Operating return on assets, calculation, 436
Operations question, 411
Opportunity cost, defined, 541
Optimum debt/equity mix, defined, 566
Option premium, defined, 337
Options, 336–339
contracts, 336–337
defined, 336
profit/loss diagrams, 339–340
Option writer, defined, 337
Order bill of lading
defined, 145
example, 146
f
Ordinary annuity, defined, 232
Ordinary taxable income, 418
Organization
corporate form, 388
proprietorship form, 385
Organizational forms/financial characteristics, 
385
t
Organization chart, finance
impact, 409–411
position, 410
f
Organization for Economic Cooperation 
and Development (OECD), 
recommendations, 409
Originating, 299–300
Out-of-the-money, defined, 339
Overseas funds, borrowing, 254
Overseas investing, 142
Over-the-counter (OTC)
exchange, 269
market, 314, 320–322
regulation, 321
stocks, trading, 321
Negotiable certificate of deposit (negotiable 
CD), 88, 473
defined, 34
Negotiable order of withdrawal (NOW)
accounts, 36
authorization, 58
Net asset value (NAV), 358
Net exports (NE), 167
defined, 167
Net income (reduction), depreciation (impact), 
545–546
Net monthly cash flows, level production, 
468
t
Net present value (NPV), 527–528, 527–530
calculations, examples, 522, 528
t,
533
t,
558
t
computation methods, 529–530
defined, 522
discount rates, relationship, 531
f
internal rate of rate (IRR), relationship, 
534–535
managerial flexibility/options, 540
profile, defined, 530
projects, origin, 522
safety margin, 539–540
spreadsheet functions, usage, 530
Net proceeds, example, 507
Net profit margin, calculation, 436
Net settlement facilities, 95
Net working capital
calculation, 491
defined, 427, 491
question, 411
Net working capital to total assets ratio, 495
f
New common stock, cost, 573–574
Newspaper exchange rate quotes, usage, 137
New York Stock Exchange (NYSE)
buying on margin, 318–319
going public, 314
limit order, 316
market order, 315
members, types, 315
NYSE-Euronext, 314
program trading, 320
record keeping, 319–320
securities
listing, 316
transactions, 316
short sale, 318
stop-loss order, 317
structure, 315–316
transactions, consolidated report, 319
Nixon, Richard, 106
Nominal GDP, expression, 38
Nominal interest rate, defined, 197
Nominal risk-free interest rate, 274
Noncumulative preferred stock, defined, 268
Nondebt tax shields, 588, 593
Nondomestic bonds, risks, 283
Nonfinancial corporate savings (United 
States), 177
t
Nonmarketable government securities, 
defined, 201–202
Nonpublic firms, criterion, 404
Normal distribution, 347
f
Note payable, 396
Not-for-profit organizations, 120

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INDEX
631
Proprietorship (sole proprietorship), 
384–386
defined, 384
financial capital, 385
Prospectus, defined, 300
Public borrowing, 171
Public Company Accounting Oversight Board 
(PCAOB), creation, 408
Public debt
ownership, 201
t
securities, ownership, 200–201
Public Debt Act of 1941, 200
Public offering
defined, 299
process, SEC regulation, 300
securities, sale amount, 301
Public transportation, developments, 173
Punic Wars (monetary devaluation), 207
Purchasing power, implications, 225
Purchasing power parity (PPP), defined, 140
Purchasing power risk, defined, 349
Putable bonds (retractable bonds), defined, 
264
Put option
defined, 336
payoff profiles from buying/writing, 340
PV. 
See
Present value
PVIF. 
See
Present value interest factor
PVIFA. 
See
Present value interest factor of an 
annuity