Chapter 7

If you bought a 3% coupon 10-year bond that is selling for $800 today, after one year the current yield would be

3.75%.

if you bought a 3% coupon 10-year bond for $800, the yield at maturity would be

5.676%

A steps in the process of stock issuance include

an elected Board of Directors authorizes the number of shares. the shares are issued through an initial public offering. the outstanding shares are traded in secondary markets.

You should read a fund's prospectus to

analyze risk and return. ensure a good match with your investment goals. compare costs.

In an initial public offering (IPO),

authorized shares are issued to the primary market.

If you bought a 3% coupon 10-year bond for $800 and sold it for $848 after 3 years, the holding period yield would

be less than the yield to maturity.

The Foleys want to have a $10,000 down payment for their first home in five years. They dedicate their savings to a 5-year bond with a face value at maturity of $10,000. Their strategy is called

cash flow matching.

Most bonds are unsecured and issued as

debentures.

Return ratios such as earnings per share (EPS) let you

directly compare returns of different stocks,

If a company's retention rate is 70%, then its

dividend payout rate is 30%

Owners of common stock

have voting rights, one vote for each share owned. assume the most risk of any corporate investor.

Derivative contracts

include future and forward contracts. are time-sensitive with an expiration date. depend on the value of commodities.

A passive strategy to achieve diversification and reduce risk through bonds is

indexing.

Stock value is determined by

its ability to income or a gain in value for investors.

An active strategy to achieve bond diversification is to take advantage of

market mispricings. market timing. matching opportunities.

An advantage of collectibles and unique assets as investments is that they

may appreciate in value. act as a store of wealth.

All bonds expose investors to risk, including the risk that

payments won't be made. payments will be reinvested at lower rates. interest rates and inflation will affect bond values.

A bond that is issued below par and pays no interest for a specified period, followed by higher-than-normal interest payments until maturity is called a

split-coupon bond.

A group created to buy and manage commercial property is called a

syndicate.

Dividend yield calculates

the dividend as a percentage of the stock price.

the percentage of fund assets that are replaced in a year is the fund's trading activity expressed as

the turnover ratio.

The value of a bond depends on

the value of its return. the cost of its risks.

Investment risk may be reduced through diversification of

types of bonds. bond maturities. sources of bonds.

Leveraged funds are riskier than funds that do not use leverage because they

use borrowing

If the market value of the securities in an open-end fund increases faster than the number of new shares issued because of greater demand, then

you will get a higher price selling your shares.