CHAPTER REVIEW

KEY CONCEPTS

Question

saving
investment
time preference
market for loanable funds
financial intermediary
bond
arbitrage
stock
initial public offering (IPO)
owner’s equity
leverage ratio
insolvency
Occurs when suppliers of loanable funds (savers) trade with demanders of loanable funds (borrowers). Trading in the market for loanable funds determines the equilibrium interest rate.
The value of the asset minus the debt, E = VD.
The ratio of debt to equity, D/E.
A certificate of ownership in a corporation.
The purchase of new capital goods.
A sophisticated IOU that documents who owes how much and when payment must be made.
Income that is not spent on consumption goods.
The desire to have goods and services sooner rather than later (all else being equal).
The buying and selling of equally risky assets, ensures that equally risky assets earn equal returns.
A firm that has liabilities that exceed its assets.
The first time a corporation sells stock to the public in order to raise capital.
Such as banks, bond markets, and stock markets reduce the costs of moving savings from savers to borrowers and investors.
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