Introduction to Finance

Best-eff ort agreement
Agreement which the 
investment bankers try to sell securities of the 
issuing corporation, but they assume no risk for 
the possible failure of the fl otation
Beta
Measure of an asset’s systematic risk
Bid
Price 
off ered by a potential buyer

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610
GLOSSARY
Compound interest
Involves 
earning 
inter-
est on interest in addition to interest on the 
principal or initial investment
Compounding
Arithmetic process whereby 
an initial value increases or grows at a com-
pound interest rate over time to reach a value 
in the future
Conditions
Current economic climate and state 
of the business cycle
Constant payout ratio
A strategy in which 
the fi rm pays a constant percentage of earnings 
as dividends; as earnings rise and fall, so does 
the dollar amount of dividends
Consumer Credit Protection Act
Requires 
the clear explanation of consumer credit costs 
and garnishment procedures (taking wages 
or property by legal means) and prohibiting 
overly high-priced credit transactions
Contractual savings
Savings accumulated 
on a regular schedule for a specifi ed length of 
time by prior agreement
Contractual savings organizations
Collect 
premiums on insurance policies and employee/
employer contributions from participants and 
provide retirement benefi 
ts and insurance 
against major fi nancial losses
Contribution margin
Contribution of each 
unit sold that goes toward paying fi xed costs
Controller
Manages accounting, cost analy-
sis, and tax planning
Conversion ratio
Number of shares into 
which a convertible bond can be converted