Glossary for Financial Management

This glossary is always under construction, so bookmark it and come back often.

This is an attempt to define financial management terminology to people with no background in financial management, so there is much more to the story than what is shown below.  Emphasis is on brevity and clarity to the detriment of detail and depth.

agent – someone who acts on behalf of another person (that other person is called the principal)

annual percentage interest rate – the annual interest rate that is quoted, but compounding may raise yield above this rate  (also see effective interest rate)

annuity – a series of payments made at regular intervals

annuity due – a series of payments made at regular intervals; payments are made at the beginning of each interval (also see ordinary annuity)

APR – annual percentage interest rate

compounding period – the length of time between interest calculations (e.g., monthly, quarterly, annually)

continuous compounding – interest is calculated instant by instant

consol – short for consolidated annuities; perpetual bonds that were issued by the UK from 1751 to 1927; as at 2015.07.05, they no longer exist

effective annual interest rate – the annual interest rate that would be charged if interest were compounded annually (also see annual percentage interest rate)

efficient stock market – prices reflect all available public information and adjust rapidly to newly released information

future value – the value in terms of some future dollar of cashflows that happened before that date

market – a place (online or real world) where people buy and sell

ordinary annuity – a series of payments made at regular intervals; payments are made at the end of each interval (also see annuity due)

perpetuity bond – bonds with no maturity date; principal is never paid back, but interest is paid forever on a regular basis

present value – the value in terms of today’s dollar of cashflows that will happen in the future

principal – a person for whom an agent acts

stakeholder – a group or person who is affected by management decisions or who has an interest in a matter

stock market – a place (online or real world) where people buy and sell stocks

stripped bond – a bond that does not pay interest on a regular basis; interest may or may not be paid on the maturity date (also see zero coupon bond)

time value of money – a concept that tells us that a dollar today is of more value than a dollar next year

zero coupon bond – a bond that does not pay interest on a regular basis; interest may or may not be paid on the maturity date (also see stripped bond)

 

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