Question

Define each term in short words and provide an example for each term as well:

1) Seasoned Equity Offering (SEO):

2) Security Market Line (SML):

3) Sinking Fund:

4) Syndicate:

5) Systematic Risk Principle:

6) Tender Offer:

7) Treasury Bond:

8) Treasury Stock:

9) Unsystematic Risk:

Answer 1

1. Seasoned equity offering is the fresh issue of equity shares by a already trading public company. Example: Issue of stock by Apple inc.

2. A security market line is the graphical representation of the Capital Asset Pricing Model with the expected return and systematic risk plotted on the axis.

3. Sinking fund is the accumulation of money over a period of time with payments made in to the fund on a periodic basis. Example : Sinking fund of $100,000 created in for a asset replacement after 5 years.

4. Syndicate is a agreement between two or more bankers who jointly offer loan to a business. Example: Bank of America and Citibank jointly offer a loan to Microsoft.

5. Systematic risk Principle : Systematic risk is the market risk that cannot be diversified and cannot be eliminated. Example; war, drought in an economy

6. Tender offer : A tender offer is made by the investors of a firm to sell all or partial shares of their shareholding to the public.

7. Treasury bond: It is a bond issued by the government and backed by the government's security. Example: 8% treasury bonds issued by the US government.

8. Treasury stock : Treasury stock is the stock purchased by the company.

9. Unsystematic risk: Unsystematic risk is the risk that can be diversified and mitigated. Example; technological changes.