Personal Finance Chapter 12

When calculating total return on stock, you must consider:

-Amount of dividends earned -price of share at time of sell -price of share at time of purchase

Which of the following provide historical measures?

-Price-earnings ratios -Beta -Earnings per share

Mutual Fund Voluntary savings Plan:

-makes many investors feel obligated to make purchases -allows you to make smaller purchases than the minimum -encourages saving in a regular each month

To make money in a short transaction:

1. arrange to borrow a stock certificate for a certain number of shares of a particular stock from a brokerage firm 2. Sell the borrowed stock, assuming it will drop in value 3. Buy the stock at a lower price than the price it sold for in step 2 4. Use the stock purchase in step 3 to replace the stock borrowed from the brokerage firm in step 1

Total Return:

A calculation that includes the annual dollar amount of income (dividends) as well as any increase or decrease in the original purchase price of the investment

Easily accessible:

A company's website site that can be viewed anytime

Earn Per Share:

A corporation's earning divided by number of outstanding shares of a firm's common stock

Investment Bank:

A financial firm that assists corporations in raising funds, usually by helping to sell new security issues

Proxy:

A legal form that lists the issues to be decided at a stockholders meeting and requests that stockholders transfer their voting rights to same individual or individuals

Dollar Cost Averaging

A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals

Dividend Reinvestment Plan:

A plan that allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation

Direct Investment Plan:

A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm

Stock Split:

A procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares

Dividends are paid on:

A quarterly basis

Limit Order:

A request to buy or sell a stock at a specified price

Market Order:

A request to buy or sell a stock at the current market price

Margin:

A speculative technique whereby an investor borrows part of the money needed to buy a particular stock

Nasdaq

An electronic marketplace for about 3600 different stocks

Divided Yield:

Annual Dollar amount of income generated by an investment divided by the investments current market value

Full Service:

Beginning investors with little experience

Book Value:

Determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock

A commission charge

Direct investment and dividend reinvestment plans allow you to purchase stocks with your dividend money with out paying

Preferred Stock:

Dividend amount is known before purchase

Common Stock:

Dividend amount is unknown until declared

The buy-and-hold technique with stock uses the reinvestment of:

Dividends

Earning estimates exist to provide estimates of:

Earnings per share Price-earning ratios

Churning:

Excessive buying and selling of securities to generate commissions

Investors:

Hold stocks at least a year

True International Fund:

Invest only in stocks outside the US

low Price-Earnings Ratio:

Less investors will pay for earnings

Account Executive:

Licensed individual who works for a brokerage firm and buys or sells investments for his/her clients

Increase in stock price:

Lose money

Decrease in stock price

Make money

High Price-Earnings Ratio:

More investors will pay for earnings

Discount:

People who understand "how to" and want to make their own decisions Individuals who are uncomfortable trading stock online

Online:

People who understand the "how to" of researching stocks and prefer to make their own decisions Individuals who are comfortable trading stocks online

Selling Short:

Selling stock that has been borrow from a brokerage firm and must be replaced at a later date

Selling Short:

Selling stock that has been borrowed from a brokerage firm and must be replaces at a later date

Buying Long:

The idea that when you buy a stock it will increase in vale over time

The more time an investment has to work:

The more money it will accumulate

Price-earnings Ratio:

The price of a share of stock divided by the corporation's earnings per share of stock

Options:

The right to buy or sell a stock at a predetermined price during a specified period of time

When stockholders have a right to vote:

They are entitled to one vote per share of stock

Traders:

Typically hold stocks less than year

Stop-loss and limit orders can be put in place for how long:

Week Day Until Canceled Month

Initial Public Offering:

When a corporation sells stock to the public for the first time

Remains unchanged:

With a stock split, a company's total market capitalization

exchange-traded fund:

a fund that invests in the stocks of other securities contained in a specific stock or securities exchange or over the counter

Secondary Market:

a market for existing financial securities that are currently traded among investors

Stop-loss order:

an order to sell a particular stock at the next available opportunity after its market price reaches a specified amount

Company choose to pay

dividends to keep stockholders happy and prosperous

A fast growing firm:

does not pay a dividend; lest likely to want to pay part of profits to shareholders in the form dividends

Common Stockholders:

elect the board of directors and must approve major changes in corporate policies

Primary Market:

market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities