GLOSSARY
G-9
Risk-free Rate
The rate of return on an investment with known future benefits; a
riskless rate of return, often estimated using the return earned on
short-term U.S. Treasury securities
Secondary
Market
The market where securities are exchanged between investors.
Secondary market transactions have no effect on the issuing
company.
Security
Market Line
A graph illustrating the equilibrium relationship between the
expected rate of return on securities and their risk as measured by
the beta coefficient
Simple
Interest
Interest paid only on the principal; calculated by multiplying the
interest rate by the principal
Standard
Deviation
A statistical term that measures the dispersion of a variable
around its expected value. The standard deviation is often used as
a measure of risk when applied to a return on an investment.
Swap
An exchange of cash flows between two counterparties. The
counterparties may exchange flows in different currencies
(currency swap) or exchange floating interest rate payments for
fixed rate payments (interest rate swap).
Systematic Risk
The amount of total risk that cannot be eliminated by portfolio
diversification. The risk inherent in the general economy as a
whole. Also known as market risk.
Times Interest
Earned Ratio
A measure of how well a company is able to meet its interest
payments based on the cash generated by its operations. It is
calculated by dividing the earnings before interest and taxes by the
total interest charges incurred by the firm.
Total Asset
Turnover
Ratio
A measure of the utilization of all of a company's assets to
generate sales. It is calculated by dividing the sales figure for the
period by the book value of the net fixed assets.
Total Debt to
Total Assets
Ratio
See debt ratio