Introduction to Finance

Subordinate debenture
Claims of these 
bonds are subor dinate or junior to the claims of 
the debenture holders
Subprime mortgage
Home loan made to 
a borrower with a relatively poor credit score 
indicating a higher likelihood that the borrower 
will miss mortgage payments when due
Sunk cost
Project-related expense not 
dependent upon whether or not the project is 
undertaken

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GLOSSARY
Weak-form effi
cient market
Market in 
which prices refl ect all past information, such 
as information in last year’s annual report, 
previous earnings announcements, and other 
past news
Weighted average cost of capital (WACC)
Represents the minimum required rate of return 
on a capital-budgeting project; it is found by 
multiplying the marginal cost of each capital 
structure component by its appropriate weight 
and summing the terms 
Working capital
A fi rm’s current assets, 
which consist of cash, marketable securities, 
accounts receivable, and inventories
World Bank
Created to help economic 
growth in devel 
oping countries (also called 
the International Bank for Reconstruction and 
Development)
Yankee bonds
Dollar-denominated bonds 
issued in the United States by a foreign issuer
Yield curve
Graphic presentation of the 
term structure of interest rates at a given point 
in time
Yield to maturity (YTM)
Return on a bond 
investment if it is held to maturity
Zero-balance account
An account in which 
just enough funds are transferred into an 
account to cover that day’s checks presented 
for payment