Investing

American Stock Exchange

1849, 2nd largest, not as strict, average stock price is $24.00

Broker

A person who is licensed to buy and sell stock, provide investment advice, and collect a commission on each purchase or sale.

What is the definition of a stock?

A share of ownership in the assets and earnings of a company.

What does beta measure?

A stock's volatility compared to overall changes in the stock market

Bond

A type of debt that a company issues to investors for a specified amount of time.

If the economic business cycle is up, cyclical stock prices...

Are also up.

What are different reasons you should invest?

Beat inflation and increase your wealth.

Speculative

Companies that have potential for substantial earnings. Very high risk. Example: internet companies

What types of companies are classified as a growth stock?

Companies who have a consistent record of relatively rapid growth and earnings in all economic conditions. Examples: Walmart

Growth

Consistent record of rapid growth and earnings. New companies expanding their product line by retaining all income and paying no dividends.

Standard and Poor's 500 Composition Index

Covers market activity for 500 stocks. More accurate than DOW because it evaluates a larger variety of stock.

What is the definition of a dividend?

Distributions of earnings paid to stockholders.

What are advantages of investing in mutual funds?

Diversify your portfolio and are professionally managed.

Compound interest

Earning interest on interest

If the price/earnings ratio of a company is 43/1, what does that mean?

For every dollar a company earns, the investor is willing to pay $43.

Diversification

Have money in multiple types of stock.

What is the relationship between risk and return?

Higher rate of return, greater risk.

Do you want your investment to earn at a higher or lower rate than the inflation rate?

Higher.

Earnings per share

How much income a company has available to pay in dividends and reinvest as retained earnings on a per share basis.

Liquidity

How quickly and easily an asset can be converted into cash.

High p/e ratio

Indicate the firm is expected to have a lot of growth in the future.

Higher beta

Indicates more risk because the stock price change will be more drastic

The year to date percent change is measured from what date?

January 1st of the current year.

Dow Jones Industrial Average (DOW)

Lists the 30 leading blue chip stocks

Why is value stock viewed as an investment bargain?

Low market price (cheaper than normal).

Value

Low market price considering previous earnings. Example: Time Warner

What is the point of a diversified portfolio?

Lowers risk.

National Association of Security Dealers Automated Quotations

Monitors fast moving technology companies. Speculative stocks, slow dramatic up and downs.

Blue chip stock

Nationally recognized companies with long records of profit, dividend payments, and a good reputation for management. Examples: McDonalds

Characteristics of NYSE

Oldest 1792, largest, 1366 seats available, 2800 companies, average stock price is $33.00, strict requirements.

How are dividends for preferred stock paid?

Par value: fixed value stated on the stock certificate, stated as a percentage

What unique characteristic do income stocks have?

Pay higher than average dividends.

Mutual funds

People pool their money together to invest, some risk is involved.

What is the difference between common stock and preferred stock?

Preferred stock has people pay fixed dividends.

What are two reasons companies like to issue stock?

Raise funds and pay for ongoing business activities (when a company wants to grow)

Common stock

Shares or units of ownership in a public corporation.

Preferred stock

Shares which pay fixed dividends and have priority over common stock.

Inflation

Steady rise of general prices

Low p/e ratio

Stocks pay higher dividends and have less risk, lower prices, and slow growth

Dividend yield percentage

The dividend expressed as a percentage of the price of the share

What are the ways the value of common stock can change?

The dollar value increases/decreases, stock split: shares owned by existing stockholders are divided into a larger number of shares, a merger of two companies, and dividends are paid.

Bear market

The market is doing poorly

Bull market

The market is doing well

Book value

The net worth of a company (assets - liabilities = book value)

What does close represent on the stock quote?

The price of the last share sold for the day.

What does the price/earnings ratio represent?

The relationship between the price of one share of stock and the annual earnings of the company (price per share / earnings per share of stock = p/e ratio

Dividends per share

The total cash paid to common stockholders per share annually

Why are utility and grocery companies generally classified as countercyclical stocks?

These are more necessary. You will need these things even when the economy is suffering.

Why is understanding the book value of a company important to researching a stock?

This indicates what would happen if a company's assets were sold, debts paid, and proceeds distributed to stockholders.

Why do organized exchanges have minimum requirements?

To ensure only reputable companies are used.

Speculative stocks have potential for very substantial earnings and therefore are...

Very high risk stocks.