Introduction to Finance

Investment grade bonds
Ratings of Baa or 
higher that meet fi nancial institution investment 
standards
Investments
Involve the sale or marketing 
of securities, the analysis of securities, and 
the management of investment risk through 
portfolio diversifi cation
Junk bonds (high-yield bonds)
Bonds 
with 
ratings that are below investment grade; that is 
Ba1, BB+, or lower
Liabilities
Creditors’ claims on a fi rm, which 
are the fi nancial obligations of the business
Limit order
Maximum buying price (limit 
buy) or the minimum selling price (limit sell) 
specifi ed by the investor
Limited branch banking
Allows 
additional 
banking offi
ces within a geographically defi ned 
distance of a bank’s main offi
ce
Limited liability company (LLC)
An 
organ-
izational form, similar to a subchapter S corpo-
ration, that off ers owners limited liability; its 
income is taxed only once, as personal income 
of the shareholders, and the fi rm can have an 
unlimited number of shareholders
Limited partners
Face limited liability to 
their investments in the fi rm, meaning their 
personal assets cannot be attached to settle the 
fi rm’s debt
Limited partnership
Has at least one gen-
eral partner who has unlimited liability; the 
liability of the limited partners is limited to 
their investment
Line of credit
Loan limit the bank establishes 
for each of its business customers
Liquidity
The ease with which an asset can 
be exchanged for money or other assets
Liquidity preference theory
Holds that 
investors or debt instrument holders prefer to 
invest short term so they have greater liquidity 
and less maturity or interest rate risk