FIN Ch 14

investment bank

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

over the counter market

A network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange.

limit order

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

margin

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

small cap stock

A stock issued by a company that has a capitalization of $500 million or less.

growth stock

A stock issued by a corporation that has the potential of earning profits above the average profits of all firms in the economy.

cyclical stock

A stock that follows the business cycle of advances and declines in the economy.

income stock

A stock that pays higher-than-average dividends.

defensive stock

A stock that remains stable during declines in the economy.

Nasdaq

An electronic marketplace for over 5,000 different stocks.

efficient market theory

An investment theory based on the assumption that stock price movements are purely random; also called the"random walk theory."

specialist

Buys or sells a particular stock in an effort to maintain an orderly market.

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.

churning

Excessive buying and selling of securities to generate commissions.

odd lot

Fewer than 100 shares of a particular stock.

securities

Investments, including stocks and bonds, mutual funds, options, and commodities, traded on securities exchanges or the over-the-counter markets.

IPO

Occurs when a corporation sells stock to the general public for the first time.

round lot

One hundred shares or multiples of 100 shares of a particular stock.

cumulative preferred stock

Stock whose unpaid dividends accumulate and must be paid before any cash dividend is paid to common stockholders.

record date

The date on which a stockholder must be registered on the corporation's books in order to receive dividend payments.

total return

A calculation that includes the yearly dollar amount of income as well as any increase or decrease in the original purchase price of the investment.

earnings per share

A corporation's after-tax earnings divided by the number of outstanding shares of a firm's common stock.

proxy

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

account executive

A licensed individual who buys or sells securities for clients; also called a stockbroker.

dollar cost averaging

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

secondary market

A market for existing financial securities that are currently traded among investors.

primary market

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

securities exchange

A marketplace where member brokers who represent investors meet to buy and sell securities.

dividend investment 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.

market order

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

blue chip stock

A safe investment that generally attracts conservative investors.

large cap stock

A stock issued by a large corporation that has a large amount of stock outstanding and a large amount of capitalization, usually in excess of $5 billion.

penny stock

A stock that typically sells for less than $1 per share.

annualized holding period yield

A yield that takes into account the total return, the original investment, and the time the investment is held.

par value

An assigned (and often arbitrary) dollar value that is printed on a stock certificate.

beta

An index that compares the risk associated with a specific stock issue with the risk of the stock market in general.

fundamental analysis

An investment theory based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings.

fundamental theory

An investment theory based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole.

discretionary order

An order to buy or sell a security that lets the account executive decide when to execute the transaction and at what price.

stop order

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

selling short

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

price earnings ratio

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

option

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

capitalization

The total amount of securities issued by a corporation.

current yield

The yearly dollar amount of income generated by an investment divided by the investment's current market value.