Investments Final Exam

puts and calls

(UWS C5) Put - a contract to sell shares at a definite price within a specified time limit Calls - a contract to buy shares at a definite price within a specified time limit

mortgage bonds

A bond secured by a mortgage on one or more assets, typically backed by real estate holdings or by property.

preferred stock

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

NASDAQ

A computerized system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over the counter stocks

stock split

A corporate action in which a company's existing shares are divided into multiple shares

corporate bonds

A debt security issued by a corporation and sold to investors

depreciation

A decrease in an asset's value caused by unfavorable market conditions.

dividend

A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

stock dividend

A dividend payment made in the form of additional shares, rather than a cash payout.

Dividend yield

A financial ratio that shows how much a corporation pays out in dividends each year relative to its share price. (Annual dividends per share/price per share)

income statement

A financial statement that measures a company's financial performance over a specific accounting period

balance sheet

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time

prospectus

A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public

SEC

A government commission created by Congress to regulate the securities markets and protect investors

Primary market

A market that issues new securities on an exchange

Secondary market

A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves NASDAQ, NYSE

treasury notes

A marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years

specialist

A member of an exchange who acts as the market maker to facilitate the trading of a given stock

technical analysis

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity

red herring

A preliminary registration statement that must be filed with the SEC describing a new issue of stock and the prospects of the issuing company.

market order

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

common stock

A security that represents ownership in a corporation

over the counter

A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc

commission

A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security

treasury bills

A short-term debt obligation backed by the U.S. government with a maturity of less than one year

NYSE

A stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities

Bid and asked quotation

A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time

debenture

A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer

price earnings ratio

A valuation ratio of a corporation's current share price compared to its earnings per share.

stockbroker

An agent that charges a fee or commission for executing buy and sell orders submitted by an investor

Annual report

An annual publication that public corporations must provide to shareholders to describe their operations and financial conditions

DOT

An electronic system that increases order efficiency by routing orders for listed securities directly to a specialist on the trading floor, instead of through a broker.

floor broker

An employee of a member firm who executes trades on the exchange floor on behalf of the firm's clients.

standard and poors

An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors

investment banker

An individual who works in a financial institution that is in the business primarily of raising capital for companies, governments and other entities, or who works in a large bank's division that is involved with these activities.

block trade

An order or trade submitted for sale or purchase of a large quantity of securities

market order

An order that an investor makes through a broker or brokerage service to buy or sell an investment immediately at the best available current price

round lot

Any amount of shares divisible by 100

odd lot

Anything less than a standard 100 shares of stock

listed

Being included and traded on a given exchange

risk capital

Equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return.

compound interest

Interest earned on both the principal amount and any interest already earned.

notes payable

Short-term or long-term liabilities that a business promises to repay by a certain date.

DJIA

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

Investing

The act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.

speculating

The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain.

principal amount

The amount originally lent

federal reserve system

The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system

transferred and held

The certificate is prepared and kept for the owner in the brokerage firm's vault

mark up

The difference between an investment's lowest current offering price among dealers and the higher price a dealer charges a customer.

markdown

The difference between the highest current bid price among broker-dealers in the market and the lower price that a dealer charges a customer.

statement of cash flow

The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

default

The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt.

IPO

The first sale of stock by a private company to the public

coupon

The interest rate stated on a bond when it's issued

transferred and shipped

The name of the owner is transferred onto the stock certificate that is mailed. The stockholder then keeps the certificate in a safe place

rule of 72

The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

underwrite

The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt).

dollar cost averaging

The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

GTC order (Good till cancelled)

This is an order that remains in effect on the specialist's book until executed or cancelled.

bonds

a certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate: The city issued bonds to raise money for putting in new sewers.

accounts receivable

a creditor's accounts of money owed to him

accounts payable

a debtor's accounts of money he owes

board of directors

a group of individuals that are elected as representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues.

limit order

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

term

amount of time

margin account

an account with a securities brokerage in which the broker extends credit

cash account

an account with a securities brokerage whose transactions are settled on a cash basis

fundamental analysis

attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).

municipal bonds

bonds issued by states, counties, cities, and towns to fund large projects as well as operating budgets. they are exempt from federal taxes and from state and local taxes for the investors who live in the state where they are issued.

flexible expenses

costs that do not stay the same such as utilities, clothes, and food

Bull market

economic prosperity

mutual funds

financial organization that pools people's money and invests it

growth stock theory

investment concept involving the purchase of shares in companies that increase earnings and dividends faster than the growth rate of the general economy over a period of years

Authorized shares

maximum number of shares that a company is legally permitted to issue, as specified in its articles of incorporation.

margin requirement

minimum deposits left with a stockbroker to be used as partial payment on other securities

equity capital

money that a business gets from its owners in order to operate.

venture capital

money to startup firms and small businesses with perceived long-term growth potential.

earnings per share

net income or profit divided by the number of stock shares outstanding

phases of the business cycle

peak- top contraction-going down trough- bottom expansion-recovery

bear market

poor economic market

self-providing

providing for yourself

Budgeting

quantitative planning through which managers decide how to allocate available money to best accomplish company goals

Short selling

selling stock borrowed from a broker that must be replaced at a later time

fixed expenses

set costs that must be paid such as rent, insurance, and car payments

trading

short term

venture capitalist

someone who provides money to startup firms and small businesses with perceived long-term growth potential.

diversification

spreading out investments to reduce risk

Outstanding shares

stock currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public.

gross national product

the amount made here and abroad

gross domestic product

the amount made here only

maturity date

the date on which a financial obligation must be repaid

street name

the name of a brokerage firm in which stock is held on behalf of a customer

par value

the value of a security that is set by the company issuing it

stockholder's equity

total assets-total liabilites

profitability and progress

two P's of growth stock investing