Personal Finance Test 4- chapter 12

Average stock return

About 10% per year and if reduced from inflation it can be 2 to 3%

Ex-dividend date

Dividends will remain with a stock until one business day before the record.

Secondary market stocks

When you purchase stocks in the secondary market, the transaction is completed on a securities exchange or throughout the over-the-counter market.

Annual report

You can read a fund's annual report by using the internet to access an investment company's website. You can also request an annual report by calling a toll-free phone number or by writing the company. A funds annual report contains a letter from the president of the investment company, from the fund manager, or both. The annual report also contains detailed financial information about the fund's assets and liabilities, performance, statement of operation, and statement of changes in net assets. Next, the annual report includes a schedule of investments. Finally, the fund's annual report should include a letter from the fund's independent auditors that provides an opinion as to the accuracy of the fund's financial statements.

Mid-cap stock

A stock that is issued by a corporation that has a capitalization of between $2 billion and $10 billion.

Penny stock

A stock that typically trades for less than $5 per shares (or in some cases, less than $1 per share) and has a small amount of capitalization.

Investment strategies

Buy and hold technique - many long term investors purchase stocks and hold onto it for a number of years. Their investments can increase in value in two ways. (1) they are entitled to dividends if the board of directors approves dividend payments to stockholders. (2) the price of the stocks may go up or appreciate in value. To see how the investors using the buy-and-hold technique can earn profits from dividends and increase in stock value. (There is no guarantees that the stock split will increase the value of a stock). Dollar cost averaging- is a long term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals.

Proxy

Is 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. Also, the common stockholders elect corporation's board of directors and must approve major changes in corporate policies.

Stop-loss order

Is an order to sell a particular stock at the next available opportunity after its market price reaches a specified amount. This type of order is used to protect an investor against a sharp drop in price and thus stop the dollar loss on stock investment.

Churning

Is excessive trading of assets in a client's brokerage account in order to generate commission. It is illegal and unethical and is subject to severe fines and sanctions. Brokerages may charge a commission on trades or a flat percentage fee for managing accounts.

Dividends

Is the distribution of money,stock, and other property that a corporation pays to stockholders. Policies vary among corporations, but most firms distribute between 30 and 70 % of their earnings to stockholders. On the other hand, some corporations follow a policy of smaller or no divided distributions to stockholders.

Common stocks

Is the most basic form of ownership for a corporation. Corporations issue common stock to finance their business start-up costs and help pay for the expansion and their ongoing business activities. Corporate managers prefer selling common stock as a method of financing for several reasons.

Stock investments

People invest in stock because they want the larger returns that stocks offer. Possible reasons for stock investment include dividend income, appreciation of value, and the possibility of gain through stock split. In addition to common stock, a few corporations may issue preferred stock. The most important priority an investor in preferred stocks enjoys is recieving cash dividends before cash dividends are paid to common stockholders.