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Investment: An investment is the current commitment of funds for a period of time in order to derive a future flow of funds that will compensate the investor for the time value of money, the expected rate of inflation over the life of the investment, and provide a premium for the uncertainty associated with this future flow of funds. Required rate of return: The required rate of return is the minimum rate of return (expressed as a percentage) that an investor requires before investing capital. Strong-form efficiency: Stronger formulation of the notion of market efficiency, which states that the price of a stock already takes all possible market information into account. Under strong form efficiency, insider trading cannot offer an advantage, as the information is already "priced-in" to the value of the stock. Portfolio Risk: In risk analysis, it is the risk that a particular combination of projects, assets, units or whatever is in the portfolio will fail to meet the overall objectives of the portfolio because of poor balance of risks within the portfolio. Right share: A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire. Book Building: The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. OTC: A security which is not traded on an organized stock exchange, usually due to an inability to meet listing requirements. OTC market: A decentralized market of securities not listed on an exchange where market participants trade over the telephone, facsimile or electronic network instead of a physical trading floor. There is no central exchange or meeting place for this market. Short sale: It is the sale of stock that an investor does not own with the intent of purchasing it back later at a lower price. A market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. Random walk theory: An investment theory which claims that market prices follow a random path up and down, without any influence by past price movements, making it impossible to predict with any accuracy which direction the market will move at any point. Private placement: The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. It does not require SEC registration, provided the securities are bought for investment purposes rather than resale. Capital market line (CML): A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. Fundamental analysis: A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data.
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