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.