1.

Finance: The process of determining the required fund for an activity or a

purpose,
identifying the available sources for raising the fund, calculating the cost of each
source, collecting the fund from the minimum cost source and allocating the
collected fund in such a way that maximizes the target is called finance.

2. Agency problem: The agency problem is a conflict of interest between a

company's management and the company's stockholders.

3. Profit maximization: Profit maximization is the short run or long run

process by which profit earning per share increased.by which a firm may
determine the price, input, and output levels that lead to the highest profit.

4. Hedging: Hedging is a risk management strategy. It deals with reducing the

risk of uncertainty. It helps to eliminate the unknown losses.it employed to
offset losses in investments by taking an opposite position in a related asset.

5. Diversification: Diversification is the process of allocating capital in a way

that reduces the exposure to any one particular asset or risk. A common path
towards diversification is to reduce risk by investing in a variety of assets.

6. Financial statement: A set of statements is a formal record of financial

activities. financial statements are prepared at the end of a certain
accounting period of an enterprise for reporting operating performance,
financial position, liquidity position and equity position for stakeholders for
making their future important decisions is known as financial statement.

7. Income statement: A statement summarize the firm’s revenues and

expenses over an accounting period, generally a year.

8. Balance sheet: A statement shows a firm’s financial position. Like amount

of assets, liabilities and owners’ equity at a specific point of time.

9. Cash flow statement: A statement reporting the change in net cash

position from the beginning to the ending of an accounting period. It affects by
firm’s operating, investing and financing activities.

10. Time value of money: Actually, the percentage change in value of a

certain amount of money for a certain time period gap is known as time
value of money.

11. Present value: The value of today that is obtained by discounting a future
cash flow or a series of cash flows by the opportunity cost of fund as discount rate.
 12. Future value: The amount or value will be obtained at a certain time
point in future of a cash flow or a series of cash flows by compounding at a
given interest rate or opportunity cost over a certain time period.

13. Annuity immediate : The annuity under which the cash flow is incurred at
the end of each period is called annuity immediate.

14. Annuity due: The annuity under which the cash flow is incurred at the
beginning of each period is called annuity due.

15. Effective rate: A method of allocating income from an asset or venture in a

uniform and equitable manner over the course of the contractual period/ expected
period during which the economic benefits from the asset or venture are expected
to materialize.

16. Floatation cost: Flotation cost is the total cost incurred by a company
in offering its securities to the public. They arise from expenses such as
underwriting fees, legal fees and registration fees.

17. Return: Percentage form of earnings from an investment or asset

including normal income and capital gain or loss is called return.

18. Real rate of return: rate of return determined by considering/adjusting

existing level of inflation is known as real rate of return.

19. Risk-free rate of return: rate of return can be earned by making investment
in government securities of a country is known as risk-free rate of return.

20. Nominal rate of return: rate of return calculated by ignoring existing level
of inflation is known as nominal rate of return.

21. Risk: Risk is the concept of fluctuations. This fluctuation can be – 1) a

deviation of the actual return from the expected return, or 2) a deviation of
average return from the year to year return. Higher the fluctuations, higher is the
risk.

22. Systematic risk: risk that cannot be avoided or minimized and that is out of
control of an individual or a business enterprise.

23. Unsystematic risk: risk that cannot be avoided but can be minimized by
making intellectual decision and that is to some extent under the control of an
individual or a business enterprise.
24. Business risk: risk related to overall business activities of a particular
business enterprise that is mostly out of control of that business enterprise.

25. Financial risk: risk related to using of fund from debt sources for forming
and running business operations or making investments by a particular party that
is under the control of that party.

26. Risk premium: The rate of return can be earned by making investment in
risk-free asset is called risk free rate of return and the rate of return can be earned
by making investment in risky asset is called nominal risky rate of return.
Generally, the nominal risky rate of return is higher that risk-free rate of return. The
increased required rate of return over risk-free rate of return is called risk
premium.

27. Common stock: Common stock is a security that represents

ownership in a corporation. Holders of common stock elect the board of
directors and vote on corporate policies. Common stock is reported in the
stockholder's equity section of a company's balance sheet.

28. Preferred stock: Preference shares, more commonly referred to as

preferred stock, are shares of a company’s stock with dividends that are
paid out to shareholders before common stock dividends are issued. If the
company enters bankruptcy, preferred stockholders are entitled to be paid
from company assets before common stockholders. Most preference shares
have a fixed dividend, while common stocks generally do not. Preferred
stock shareholders also typically do not hold any voting rights, but common
shareholders usually do.

29. Bond: A long-term debt instrument in which a borrower agrees to make

payments of principal and interest, on specific dates, to the holder of the
instrument by securing sufficient collateral is called bond.

29. Debenture: A debenture is a type of bond or other debt instrument

that is unsecured by collateral.

30. Cost of money: The interest that could be earned if the amount
invested in a business or security was instead invested in government bonds
or in time deposits.

31. Financial asset: A financial asset is a non-physical asset whose value

is derived from a contractual claim, such as bank deposits, bonds, and
stocks. Financial assets are usually more liquid than other tangible assets,
such as commodities or real estate, and may be traded on financial markets.

33. Perpetual security : Perpetual securities are securities, which have

received the greatest distribution in the stock market and there are in traditionally
documentary "paper" form.
34. Financial market: Financial market is a market in which people trade financial
securities and derivatives at low transaction costs. Some of the securities include
stocks and bonds, and precious metals.

35. Optimum capital structure: The optimum capital structure strikes that
balance between risk and return which maximizes the price of the stock and
simultaneously minimizes the firm’s overall cost of capital.

36. Optimum dividend policy: The dividend policy that strikes a balance
between current dividends and future growth and maximizes firm’s stock price.

37. Clientele effect: The tendency of a firm to attract the type of investor who
likes its dividend policy.

38. Dividend relevancy theory: The value of a firm is affected by its dividend
policy. Dividend Policy has a positive impact on the firm’s position in the stock
market. Higher Dividend will increase the value of stock whereas low dividend
wise reverse. More and more Dividend is an indication of more and more
profitability.

39. Free cash flow hypothesis: Cash flows are remaining for declaring and
paying dividend after meeting up the fund requirement for implementing all
reinvestment plans.

40. Wealth maximization: Wealth maximization is the concept of increasing the

value of a business in order to increase the value of the shares held by its
stockholders. ... The most direct evidence of wealth maximization is changes in
the price of a company's shares.

41. Cost of capital: The minimum required rate of return expected by investors
for providing funds to a business organization is called cost of capital. generally
It means weighted average cost of capital. It is the minimum rate of payments from
the part of business organization against raising of funds and the minimum rate of
receipts from the part of the suppliers of funds.

42. Weighted average cost of capital: Weighted Average Cost of Capital is the
weighted average of individual sources of capital. The weighted average cost of
capital is the rate that a company is expected to pay on average to all its security
holders to finance its assets. it is commonly referred to as the firm's cost of capital.
Importantly, it is dictated by the external market and not by management.

43. Residual dividend: Residual dividend is a dividend policy that companies use
when calculating the dividends to be paid to shareholders. Companies that use a
residual dividend policy fund capital expenditure with available earnings before
paying dividends to shareholders.
44. Information content hypothesis: The theory that investors regard dividend
changes as signals of management’s earnings forecasts.