Hanson FS

Term of The Day- Hyperinflation

Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy.

While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.

Although hyperinflation is a rare event for developed economies, it has occurred many times throughout history in countries such as China, Germany, Russia, Hungary, and Argentina.

Hyperinflation causes consumers and businesses to need more money to buy products due to higher prices.

Hyperinflation can cause a number of consequences for an economy. People may hoard goods, including perishables such as food, because of rising prices, which, in turn, can create food supply shortages. When prices rise excessively, cash, or savings deposited in banks, decreases in value or becomes worthless since the money has far less purchasing power. Consumers' financial situation deteriorates and can lead to bankruptcy.

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Term of The Day - Sophisticated Investor

A Sophisticated Investor is someone who has sufficient investing experience and directly relevant knowledge to weigh up the potential risks and benefits of an investment opportunity.

In other words, the person genuinely understands what they need and want, and what they are getting from the seller.

At a minimum, such investors will ensure that their portfolios are sufficiently diversified, monitored regularly and that buying takes place when markets are relatively low and selling when they are high.

Investors who fail to heed these three basic principles are not sophisticated.

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Term of The Day- Bond

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).

A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations.

Owners of bonds are debtholders, or creditors, of the issuer.

Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually include the terms for variable or fixed interest payments made by the borrower.

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Term of The Day - Junk Bond

Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments.

A bond is a debt or promise to pay investors interest payments along with the return of invested principal in exchange for buying the bond.

Junk bonds represent bonds issued by companies that are financially struggling and have a high risk of defaulting or not paying their interest payments or repaying the principal to investors.

Junk bonds are also called high-yield bonds since the higher yield is needed to help offset any risk of default.

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Term of The Day - Required Rate of Return (RRR)

The required rate of return (RRR) is the minimum return an investor will accept for owning a company's stock, as compensation for a given level of risk associated with holding the stock.

The RRR is also used in corporate finance to analyze the profitability of potential investment projects.

The RRR is also known as the hurdle rate, which like RRR, denotes the appropriate compensation needed for the level of risk present. Riskier projects usually have higher hurdle rates, or RRRs, than those that are less risky.

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