Series 65 - Chapter 1 - Economic Factors and Business Information

form 3

initial filing, tell the ownership amounts

internal rate of return (IRR)

interest rate that makes the net present value of all cash flows equal zero

form 144

investors get clues to a corporate insider's pattern of selling securities and pressure to sell

form 5

annual summary of form 4 and includes any information that should have been reported

additional information

any other relevant information, such as recent sales of unregistered securities

prospectus

legal document that charges the issuer of the securities to provide details of the investment offered, how the business operates, its history, management, financial condition and insight into any risk

if beta < 1 the security will move to a ___ ___ than the market

less extent

when monetary policy expand credit, lower interest rates make bonds ___ appealing as investments and stocks ___ appealing

less, more

Lower reserve requirements ___ the money supply

loosen

A lower discount rate ____ money supply

loosens

systematic risk

market risk, potential for the entire market to decline

3 measures of central tendency

mean, median, mode

beta

measure of systematic risk relative to the market as a whole

alpha

measures stock-price volatility based on the specific characteristics of the particular security

a security with a wide range is ___ volatile

more

do foreign companies need to submit paper disclosures?

no, they can post them in English on the internet

liquidation priority

order in which creditors and shareholders are paid

unemployment rate

percentage of the unemployed

peak

period where the growth rate of the expansion slow and the economy is in a period of prosperity

duration takes into account

the length of time to maturity and the difference between the coupon rate and the yield to maturity

liquidity risk refers to

the marketability of the bond

the IRR represents

the return a company would earn if it expanded or invested in itself rather than elsewhere

flat yield curve occurs where yields are

the same for short, intermediate, and LT bonds

lagging indicators

signs that do not emerge until after a change in economic conditions

price-to-book ratio

a valuation ratio used to compare a stock's market value to its book value

price/earnings ratio

a valuation ratio used to determine how the market has valued the share in comparison to its earnings per share

total return

actual rate of return an investment provided over a certain period of time

10-k report

comprehensive analysis of the company, more informations than an annual report

standard deviation

dispersion of a set of data from its mean (average)

an inverted yield curve may be an indication of ____ ____

economic decline

inflation

every dollar buys less goods, prices rise

deflation

every dollar buys more goods, prices lower

business cycles

expansion, peak, contraction, recovery

trade surplus

exports exceed imports

when the supply of money increases, interest rates ___

fall

contraction

follows the peak

who reads income statements and balance sheets?

fundamental analysts

if beta > 1 the security will move to at a ___ ___ than the market

greater pace

a high P/E suggests investors are expecting ____ earnings growth in the future compared to companies with lower P/E

higher

inverted (negative) yield curve means short-term interest rates are ___ than long-term rates

higher

interest rate is more of a risk if the investor can't ___ ___ ___ ___ ___

hold the bond until maturity

form 4

identifies the changes in ownership

trade deficit

imports exceed exports

for a normal yield curve, as maturity lengthens, interest rates ___

increase

when the supply of money tightens, interest rates ___

increase

expansion is characterized by?

increase economic activity and real GDP increases

Buying government securities ____ the money supply by ____ cash in the economy and helps lead to ___ interest rates

increases, injecting, lower

real return

inflation-adjusted return

balance sheet is a

snapshot of the company's financial health and condition

A trade surplus results in a ___ dollar

stronger

sharpe ratio is calculated by

subtracting the risk-free rate of return from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns

net present value (NPV)

sum of the present values of incoming and outgoing cash flows over a period of time

market risk is the same as

systematic risk

balance of payments (BOP)

the amount of foreign currency taken in minus the amount of domestic currency paid out

quick ratio equation

(current assets - inventory) / current liabilities

the 10-q is provided within __ __ of the end of each of the first three quarters of the company's fiscal year

45 days

if major developments don't make 10-k or 10-q in time they are presented in the ___ report

8-k

companies must submit a 10-k report within __ __ of the end of their fiscal year

90 days

yield curve

a graph that plots bond yields against their time period to maturity

Consumer Price Index (CPI)

a measure of the price of a basket of goods and services

Producer Price Index (PPI)

a measure of the price of commercial items

contraction is characterized by?

a reduction in GDP and other business indicators

4 parts of the 10-k

business summary, management discussion and analysis, financial statements, sections discussing management team and legal proceeding

capital structure

careful balance between equity and debt that a business uses to finance assets, day-to-day operations and future growth

inflation risk

chance that cash flows from an investment won't be worth as much in the future

coincident indicators

coincide with current economic activity

The Federal Reserve can change the percentage of ___ required to buy securities on margin

credit

current ratio equation

current assets/current liabilities

if interest rates rise, the market value of the bond will ___

decline

Selling securities ____ the money supply by ____ cash in the economy and helps to ____ interest rates

decreases, removing, raise

10-q report

details company's latest developments and provides a preview of the direction it plans to take

risk-adjusted return

determine if the amount of return received is commensurate with the risk taken

range

difference between the low and high prices for a security or index over a specific time period

yield spreads

difference in interest rates between different classes of bonds

expansion

phase after a low point in the economy

normal yield curve

positively sloped, lower interest rates correlated with shorter maturities

business risk

possibility that a company will have lower than anticipated profits

leading indicators

preview signs of improvement or decline in economic conditions

debt-to-equity ratio

proportion of equity and debt used to finance a company's assets

2 parts of registration statements

prospectus, additional information

registration statements

provide investors with an understanding of the securities offered and the profitability of the company

a contraction is also called a

recession

monetary policy

refers to actions taken by the Federal Reserve to either increase or decrease the money supply in the economy

fiscal policy

refers to government actions that may influence economic activity

opportunity cost

refers to the potentially higher rate of return an investor could earn if the money used to purchase a bond were placed in an alternate investment

income statement shows...

results of operations over a period, revenues and expenses

schedule 13D

reveal who owns most of the company's shares and introduces the owner to investors

when monetary policy tightens credit, interest rates will ___, earnings will ___, and the mkt price of the stock is likely to ___ as well

rise, decrease, decrease

regulatory risk

risk that a change in laws and regulations will materially impact things

political risk

risk that an investment's return could suffer as a result of political changes or instability

unsystematic risk

risk that any one stock may go down in value, independent of the stock market as a whole

proxy statements are presented prior to the ___ ___ and must be filed with the sec before a ___ ___

shareholder meeting, shareholder vote

Higher reserve requirements ___ the money supply

tighten

A higher discount rate ____ money supply

tightens

Gross Domestic Product (GDP)

total amount of all goods and services produced in the country

debt-to-equity equation

total liab / shareholders equity

a recovery is also called a

trough

the 10-q includes these two things while the 10-k does not

unaudited financial statements and less detailed reports

a low P/B ratio means that the stock is _____

undervalued

quick ratio

used to gauge a company's liquidity

sharpe ratio is used to

uses the standard deviation of a stock or portfolio to measure volatility, measures risk-adjusted return

inverted yield curve occurs when there is a ___ demand for ST bonds and a ___ demand for LT bonds

weak, strong

A trade deficit results in a ___ dollar

weaker

proxy statement

where investors can view management's salaries, conflicts of interest, and other perks received

recovery

where the contraction reaches bottom, may be stagnant for a time before starting next expansion

current ratio

whether or not a firm has enough resources to pay its current debts

if beta = 1 the security price will move ___ the market

with

can the prospectus be audited by a CPA?

yes