Introduction to Finance

Conversion value
Stock price times the 
conversion ratio
Convertible bond
Can be changed or con-
verted, at the investor’s option, into a specifi c 
number of shares of the issuer’s common stock
Convertible preferred stock
Has a special 
provision that makes it possible to convert it to 
common stock of the corporation, generally at 
the stockholder’s option
Corporate bond
Debt instrument issued by 
a corporation to raise long-term funds
Corporate equity capital
Financial 
capital 
supplied by the owners of a corporation
Corporate retention rate
Calculated as 
undistributed profi ts divided by profi ts after 
taxes
Corporation
Legal entity created under state 
law in the United States with an unending life 
and limited fi nancial liability to its owners
Correlation
Statistical concept that relates 
movements in one set of returns to movements 
in another set over time
Cost of capital
(1) minimum acceptable rate 
of return to a fi rm on a project; (2) the project’s 
required rate of return
Cost-push infl ation
Occurs when prices are 
raised to cover rising production costs, such as 
wages
Call deferment period
Specifi ed period 
of time after the bond issue during which the 
bonds cannot be called
Call option
A contract for the purchase of 
securities
Call price
Price paid to the investor for 
redemption prior to maturity, typically par 
value plus a call premium of one year’s interest
Call risk
Risk of having a bond called away 
and re-investing the proceeds at a lower interest 
rate
Callable bonds
Can be redeemed prior to 
maturity by the issuing fi rm