stocks

what are the "greeks" in options trading (not the specific symbols/letters but the meaning behind the greek letters in general)

"Greeks" is a term used in the options market to describe the different dimensions of risk involved in taking an options position. These variables are called Greeks because they are typically associated with Greek symbols. Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Traders use different Greek values, such as delta, theta, and others, to assess options risk and manage option portfolios

what does 1 share equal in terms of voting rights for most companies

1 vote

what is the formula for coupon yield

1 years worth of coupon payments/face value

when predicting a company's future what is the time frame into the future that you should look at (how far into the future should you estimate) and why

10 years because the u.s. federal note is a 10 year loan and it is virtually risk free so u want to compare your return on investment to that investment.

what is the face value, also known as the par, of most bonds

1000 per bond

what are the hours for futures trading

24 hours a day since the trading is decentralized around the world

how many letters does a stock ticker on nasdaq and otc have. what about nyse

5 for otc and nasdaq. 3 for nyse.

what are the hours for options trading

9:30-4 eastern time

Savings Bonds

A U.S. savings bond is a government bond offered to its citizens to help fund federal spending, and which provides savers with a guaranteed, although modest, return. These bonds are issued with zero coupon at a discount with an implied fixed rate of interest over a fixed period of time. For instance, Series EE savings bonds are sold at 50% of their face value, and mature to their full value after 20 years. KEY TAKEAWAYS U.S. savings bonds are a form of government debt issued to American citizens to help fund federal expenditures. Savings bonds are sold at a discount and mature to their full face value, and do not pay regular coupon interest. Series EE bonds are sold at half of face value and mature in 20 years. Series I bonds are adjusted for inflation.Series EE savings bonds are another form of debt security. Series EE bonds accrue interest quarterly; interest is paid when the bond is redeemed. Some investors can receive tax benefits when using Series EE bonds for education funding. Series 1 bonds, a second class of savings bonds, are very similar but are adjusted for inflation rather than offering a fixed rate throughout their lifetime.

what is a bear market rally/dead cat bounce/suckers rally

A bear Market Rally refers to a sharp. short-term price increase in a stock or market amid a longer-term bear market period. Investors can sometimes misinterpret bear market rallies as markers of the end of a bear market, and so they must be treated with caution. These may also be called a dead cat bounce or a sucker rally. KEY TAKEAWAYS Bear market rallies are periods during a bear market when assets quickly appreciate in value in the short term, over days and weeks, before heading back down to new lows. Bear market rallies are not a sign that the bear market is over or that asset prices have stabilized. Though long-term investors should not try to trade bear rallies or buy stocks when they are gaining in value, traders may be able to make money selling assets as they increase in value and buying them as they continue their downward march. While speculating on bear market rallies tends to be a high-risk investment strategy, it can be attractive to investors looking to sell assets they may have bought at the bottom of the bear market as the rally peaks. This strategy can also be attractive to stockholders looking to mitigate long-term losses and to liquidate assets.

what is a bear trap

A bear trap is a technical pattern that occurs when the performance of a stock, index, or other financial instrument incorrectly signals a reversal of a rising price trend. The trap is thus a false reversal of a declining price trend. Bear traps can tempt investors into taking long positions based on anticipation of price movements which do not end up taking place. KEY TAKEAWAYS A bear trap is a false technical indication of a reversal from a down- to an up-market that can lure unsuspecting investors. These can occur in all types of asset markets, including equities, futures, bonds, and currencies. A bear trap is often triggered by a decline that induces market participants to open short sales, which then lose value in a reversal when shorts are forced to cover.

what is a bear put spread and what is a bull call spread

A bull call spread, or bull call vertical spread, is created by buying a call and simultaneously selling another call with a higher strike price and the same expiration. The spread is profitable if the underlying asset increases in price, but the upside is limited due to the short call strike. The benefit, however, is that selling the higher strike call reduces the cost of buying the lower one. Similarly, a bear put spread, or bear put vertical spread, involves buying a put and selling a second put with a lower strike and the same expiration.

what is a share buyback/share repurchase plan

A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake. KEY TAKEAWAYS A buyback is when a corporation purchases its own shares in the stock market. A repurchase reduces the number of shares outstanding, thereby inflating (positive) earnings per share and, often, the value of the stock. A share repurchase can demonstrate to investors that the business has sufficient cash set aside for emergencies and a low probability of economic troubles

explain how the profitability of an option is determined after the expiration date arrives

A call option buyer stands to make a profit if the underlying asset, let's say a stock, rises above the strike price before expiry. A put option buyer makes a profit if the price falls below the strike price before the expiration. The exact amount of profit depends on the difference between the stock price and the option strike price at expiration or when the option position is closed.

what is a certificate of deposit

A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer them, although it's up to each bank which CD terms it wants to offer, how much higher the rate will be compared to the bank's savings and money market products, and what penalties it applies for early withdrawal.

what is a clearinghouse's role in the financial markets

A clearinghouse is a designated intermediary between a buyer and seller in a financial market. The clearinghouse validates and finalizes the transaction, ensuring that both the buyer and the seller honor their contractual obligations. Every financial market has a designated clearinghouse or an internal clearing division to handle this function. Understanding the Clearinghouse The responsibilities of a clearinghouse include "clearing" or finalizing trades, settling trading accounts, collecting margin payments, regulating delivery of the assets to their new owners, and reporting trading data.

what is a collateral trust bond

A collateral trust bond is a bond that is secured by a financial asset—such as stock or other bonds—that is deposited and held by a trustee for the holders of the bond. The bond is perceived as a safer investment than an unsecured bond since the assets could be sold to pay the bondholder, if necessary. A collateral trust bond is also called a collateral trust certificate or collateral trust note. KEY TAKEAWAYS A collateral trust bond is a type of secured bond, in which a corporation deposits stocks, bonds, or other securities with a trustee so as to back its bonds. The collateral has to have a market value at the time the bond is issued that is at least equal to the value of the bonds. The value of the collateral is periodically reassessed to make sure it still matches the value initially pledged. If over time, the value of the collateral falls below the agreed-upon minimum, the issuer has to put up additional securities or cash as collateral. This kind of bond is considered safer than an unsecured bond; however, the tradeoff with greater safety is a lower yield and therefore lower payout.

what is a fiscal year

A company's fiscal year is its financial year; it is any 12-month period that the company uses for accounting purposes. The fiscal year is expressed by stating the year-end date. A fiscal year-end is usually the end of any quarter, such as March 31, June 30, September 30, or December 31.

convertible bond

A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond's life and is usually at the discretion of the bondholder. As a hybrid security, the price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's credit rating.

what is a convertible debenture

A convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period. Convertible debentures are usually unsecured bonds or loans meaning that there is no underlying collateral connected to the debt. These long-term debt securities pay interest returns to the bondholder, who is the lender. The unique feature of convertible debentures is that they are convertible into stock at specified times. This feature gives the bondholder some security that may offset some of the risks involved with investing in unsecured debt

what is a corporate raider

A corporate raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes in the company's leadership and management. This would increase share value and thus generate a massive return for the raider.

what does coupon rate mean for bonds

A coupon rate is the yield paid by a fixed-income security; a fixed-income security's coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond's face or par value. The coupon rate, or coupon payment, is the yield the bond paid on its issue date. This yield changes as the value of the bond changes, thus giving the bond's yield to maturity. A bond's coupon rate can be calculated by dividing the sum of the security's annual coupon payments and dividing them by the bond's par value. For example, a bond issued with a face value of $1,000 that pays a $25 coupon semiannually has a coupon rate of 5%. All else held equal, bonds with higher coupon rates are more desirable for investors than those with lower coupon rates. The coupon rate is the interest rate paid on a bond by its issuer for the term of the security. The term "coupon" is derived from the historical use of actual coupons for periodic interest payment collections. Once set at the issuance date, a bond's coupon rate remains unchanged and holders of the bond receive fixed interest payments at a predetermined time-frequency. KEY TAKEAWAYS A coupon rate is the yield paid by a fixed-income security. When a market ticks up and is more favorable, the coupon holder will yield less than the prevailing market conditions as the bond will not pay more, as its value was determined at issuance. The yield to maturity is when a bond is purchased on the secondary market, and is the difference in the bond's interest payments, which may be higher or lower than the bond's coupon rate when it was issued. A bond issuer decides on the coupon rate based on prevalent market interest rates, among others, at the time of the issuance. Market interest rates change over time and as they move higher or lower than a bond's coupon rate, the value of the bond increases or decreases, respectively.

what is a credit default swap

A credit default swap (CDS) is a financial derivative or contract that allows an investor to "swap" or offset his or her credit risk with that of another investor. For example, if a lender is worried that a borrower is going to default on a loan, the lender could use a CDS to offset or swap that risk. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse the lender in the case the borrower defaults. Most CDS will require an ongoing premiumpayment to maintain the contract, which is like an insurance policy. A credit default swap is the most common form of credit derivative and may involve municipal bonds, emerging market bonds, mortgage-backed securities or corporate bonds.

what is a dead cat bounce

A dead cat bounce is a temporary recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. Frequently, downtrends are interrupted by brief periods of recovery—or small rallies—where prices temporarily rise. The name "dead cat bounce" is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.

what are defensive stocks

A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle. Defensive stocks should not be confused with defense stocks, which are the stocks of companies that manufacture things like weapons, ammunition, and fighter jets.

what are derivatives

A derivative is a security whose underlying asset dictates its pricing, risk, and basic term structure.There are many types of derivative instruments, including options, swaps, futures, and forward contracts. Derivatives have numerous uses while incurring various levels of risks but are generally considered a sound way to participate in the financial markets. Investors typically use derivatives to hedge a position, to increase leverage, or to speculate on an asset's movement. Derivatives can be bought or sold over-the-counter or on an exchange. There are three types of derivative contracts including options, swaps, and futures/forward contracts. The perceived risk of the underlying asset influences the perceived risk of the derivative. The pricing of the derivative may feature a strike price. This is the price at which it may be exercised. There may also be a call price with fixed income derivatives, which signifies the price at which an issuer can convert a security. OTC derivatives are contracts that are made privately between parties, such as swap agreements, in an unregulated venue. On the other hand, derivatives that trade on an exchange are standardized contracts. There is counterparty risk when trading over the counter because contracts are unregulated, while exchange derivatives are not subject to this risk due to clearing houses (A clearing house acts as an intermediary between a buyer and seller and seeks to ensure that the process from trade inception to settlement is smooth. Its main role is to make certain that the buyer and seller honor their contract obligations.) acting as intermediaries.

what is a direct stock purchase plan

A direct stock purchase plan (DSPP) is a program that enables individual investors to purchase a company's stock directly from that company without the intervention of a broker. Some companies that offer DSPPs make the plans directly available to retail investors while others use transfer agents or other third-party administrators to handle these transactions. Such plans offer low fees and sometimes the ability to purchase shares at a discount. Not all companies offer DSPPs; and these plans may come with restrictions about when an individual may purchase shares. Such plans have lost some of their appeal over the last two decades as investing through online brokers has become less expensive and more convenient, though DSPPs still offer advantage for the long-term investor who doesn't have much money to get started.

what is a dual exchange rate

A dual exchange rate is a setup created by a government where their currency has a fixed official exchange rate and a separate floating rate applied to specified goods, sectors or trading conditions. The floating rate is often market-determined in parallel to the official exchange rate. The different exchange rates are intended to be applied as a way to help stabilize a currency during a necessary devaluation. KEY TAKEAWAYS A dual exchange rate system is seen as a middle ground between a fixed rate and a market-driven devaluation. The system allows certain goods to be traded at one rate while others at a different rate. A dual or multiple foreign-exchange rate system is usually intended to be a short-term solution for a country to deal with an economic crisis. Proponents of such a policy believe that it helps the government by maintaining optimal production and distribution of exports, while keeping international investors from rapidly devaluing the currency in a panic.

what is a fiduciary

A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests. A fiduciary might be responsible for general well-being, but often the task involves finances—managing the assets of another person, or of a group of people, for example. Money managers, financial advisors, bankers, accountants, executors, board members, and corporate officers all have fiduciary responsibility.

what is the difference between first and second mortgage

A first mortgage is a primary lien on a property. As a primary loan that pays for the property, the loan has priority over all other liens or claims on a property in the event of default. A first mortgage is not the mortgage on a borrower's first home; it is the original mortgage taken on any one property. It is also called First Lien. If the home is refinanced, the refinanced mortgage assumes the first mortgage position. Understanding First Mortgage When an individual wants to buy a property, they may decide to finance the purchase with a loan from a lending institution. The lender expects the home loan or mortgage to be repaid in monthly installments, which include a portion of the principal and interest payments. The lender will have a lien on the property since the loan is secured by the home. This mortgage taken out by a homebuyer to purchase the home is known as the first mortgage. The first mortgage is the original loan taken out on a property. The homebuyer could have multiple properties in their name; however, it is the original mortgages taken out to secure each of the properties that constitute the first mortgage. For example, if a property owner takes out a mortgage for each of their three homes, each of the three mortgages is the first mortgage. The term "first mortgage" leads one to understand that there could be other mortgages on a property. A homeowner could take out another mortgage, such as a second mortgage, while the original and first mortgage is still in effect. The second mortgage is money borrowed against home equity to fund other projects and expenditures. However, the second mortgage and any other subsequent mortgages were taken out on the same property are subordinate to the first mortgage. This means that the first mortgage is paid before the secondary mortgages are paid in the event of default. A second mortgage is a type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than that of the first mortgage. A second mortgage is also called a home equity loan. KEY TAKEAWAYS A second mortgage is a loan made in addition to the homeowner's primary mortgage. HELOCs are often used as second mortgages. Homeowners might use a second mortgage to finance large purchases like college or a new vehicle. How a Second Mortgage Works When most people purchase a home or property, they take out a home loan from a lending institution that uses the property as collateral. This home loan is called a mortgage, or more specifically, a first mortgage. The borrower is required to repay the loan in monthly installments made up of a portion of the principal amount and interest payments. Over time, as the homeowner makes good on his monthly payments, the value of the home also appreciates economically. The difference between the current market value of the home and any remaining mortgage payments is called home equity. A homeowner may decide to borrow against his home equity to fund other projects or expenditures. The loan he takes out against his home equity is known as a second mortgage, as he already has an outstanding first mortgage. The second mortgage is a lump sum of payment made out to the borrower at the beginning of the loan. Like first mortgages, second mortgages must be repaid over a specified term at a fixed or variable interest rate, depending on the loan agreement signed with the lender. The loan must be paid off first before the borrower can take on another mortgage against his home equity. Second mortgages are often riskier because the primary mortgage has priority and is paid first in the event of default.

what is the difference between fixed rate and variable rate bonds

A fixed rate bond is a bond that pays the same level of interest over its entire term. An investor who wants to earn a guaranteed interest rate for a specified term could purchase a fixed rate bond in the form of a Treasury, corporate bond, municipal bond, or certificate of deposit (CD). Because of their constant and level interest rate, these are known broadly as fixed-income securities. Fixed rate bonds can be contrasted with floating or variable rate bonds. KEY TAKEAWAYS A fixed-rate bond is a debt instrument with a level interest rate over its entire term, with regular interest payments known as coupons. Upon maturity of the bond, holders will receive back the initial principal amount in addition to the interest paid. Typically, longer-term fixed-rate bonds pay higher interest rates that short-term ones. A variable interest rate (sometimes called an "adjustable" or a "floating" rate) is an interest rate on a loan or security that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically. The obvious advantage of a variable interest rate is that if the underlying interest rate or index declines, the borrower's interest payments also fall. Conversely, if the underlying index rises, interest payments increase. Unlike variable interest rates, fixed interest rates do not fluctuate

what is the difference between fixed and floating exchange rates

A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.

what is a foreign currency swap

A foreign currency swap, also known as an FX swap, is an agreement to exchange currency between two foreign parties. The agreement consists of swapping principal and interest payments on a loan made in one currency for principal and interest payments of a loan of equal value in another currency. One party borrows currency from a second party as it simultaneously lends another currency to that party. The purpose of engaging in a currency swap is usually to procure loans in foreign currency at more favorable interest rates than if borrowing directly in a foreign market. There are two main types of currency swaps. The fixed-for-fixed currency swap involves exchanging fixed interest payments in one currency for fixed interest payments in another. In the fixed-for-floating swap, fixed interest payments in one currency are exchanged for floating interest payments in another. In the latter type of swap, the principal amount of the underlying loan is not exchanged.

what is a forfeited share

A forfeited share is a share in a publicly-traded company that the owner loses (or forfeits) by neglecting to live up to any number of purchase requirements. For example, a forfeiture may occur if a shareholder fails to pay an owed allotment (call money), or if he sells or transfers his shares during a restricted period. When a share is forfeited, the shareholder no longer owes any remaining balance and surrenders any potential capital gain on the shares, which automatically revert back to the ownership of the issuing company.

what is a forward contract

A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging. While their OTC nature makes it easier to customize terms, the lack of a centralized clearinghouse also gives rise to a higher degree of default risk. As a result, forward contracts are not as easily available to the retail investor as futures contracts. While banks and financial corporations mitigate this risk by being very careful in their choice of counterparty, the possibility of large-scale default does exist.

what is the purpose of a futures contract? why would an investor do it.

A futures contract allows an investor to speculate on the direction of a security, commodity, or a financial instrument, either long or short, using leverage. Futures are also often used to hedge the price movement of the underlying asset to help prevent losses from unfavorable price changes

if u are buying a bond given out by a public company what should you look at to judge overall market perception/market determined value

A good tip for bond investors is to take a look at the issuer's common stock to see how it is being perceived. If it is disliked, or there is unfavorable research in the public domain on the equity, it will likely spill over and be reflected in the price of the bond as well.

guaranteed bonds

A guaranteed bond is a debt security that offers a secondary guarantee that interest and principal payments will be made by a third party, should the issuer default due to reasons such as insolvency or bankruptcy. A guaranteed bond can be of either the municipal or corporate variety. It can be backed by a bond insurance company, a fund or group entity, a government authority, or the corporate parents of subsidiaries or joint ventures that are issuing bonds. KEY TAKEAWAYS A guaranteed bond is a debt security which promises that, should the issuer default, its interest and principal payments will be made by a third party. Corporate or municipal issuers of bonds turn to guarantors—which can be financial institutions, funds, governments, or corporate subsidiaries—when their own creditworthiness is weak. On the upside, guaranteed bonds are very safe for investors, and enable entities to secure financing—often on better terms—than they'd be able to do otherwise. On the downside, guaranteed bonds tend to pay less interest than their non-guaranteed counterparts; they also are more time-consuming and expensive for the issuer, who has to pay the guarantor a fee and often submit to a financial audit.

holding company

A holding company is a business entity—usually a corporation or limited liability company (LLC). Typically, a holding company doesn't manufacture anything, sell any products or services, or conduct any other business operations. Rather, holding companies hold the controlling stock in other companies. Although a holding company owns the assets of other companies, it often maintains only oversight capacities. So while it may oversee the company's management decisions, it does not actively participate in running a business's day-to-day operations of these subsidiaries. A holding company is also sometimes called an "umbrella" or parent company. KEY TAKEAWAYS A holding company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries. The parent corporation can control the subsidiary's policies and oversee management decisions but doesn't run day-to-day operations. Holding companies are protected from losses accrued by subsidiaries—so if a subsidiary goes bankrupt, its creditors can't go after the holding company.

hurdle rate

A hurdle rate is the minimum rate of return on a project or investment required by a manager or investor. It allows companies to make important decisions on whether or not to pursue a specific project. The hurdle rate describes the appropriate compensation for the level of risk present—riskier projects generally have higher hurdle rates than those with less risk. In order to determine the rate, the following are some of the areas that must be taken into consideration: associated risks, cost of capital, and the returns of other possible investments or projects. A hurdle rate is the minimum rate of return required on a project or investment. Hurdle rates give companies insight into whether they should pursue a specific project. Riskier projects generally have a higher hurdle rate, while those with lower rates come with lower risk. Investors use a hurdle rate in a discounted cash flow analysis to arrive at the net present value of an investment to deem its worth. If an expected rate of return is above the hurdle rate, the investment is considered sound. If the rate of return falls below the hurdle rate, the investor may choose not to move forward. A hurdle rate is also referred to as a break-even yield. Often, a risk premium is assigned to a potential investment to denote the anticipated amount of risk involved. The higher the risk, the higher the risk premium should be, as it takes into consideration the fact that if the risk of losing your money is higher, so should the return on your investment be higher. For example, a company with a hurdle rate of 10% for acceptable projects would most likely accept a project if it has an IRR of 14% and no significant risk. Alternatively, discounting the future cash flows of this project by the hurdle rate of 10% would lead to a large and positive net present value, which would also lead to the project's acceptance.

what is a leveraged buyout/acquisition

A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. KEY TAKEAWAYS A leveraged buyout is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition.

what is a leveraged loan

A leveraged loan is a type of loan that is extended to companies or individuals that already have considerable amounts of debt or poor credit history. Lendersconsider leveraged loans to carry a higher risk of default, and as a result, a leveraged loan is more costly to the borrower. Default occurs when a borrower can't make any payments for an extended period. Leveraged loans for companies or individuals with debt tend to have higher interest rates than typical loans. These rates reflect the higher level of risk involved in issuing the loans. There are no set rules or criteria for defining a leveraged loan. Some market participants base it on a spread. For instance, many of the loans pay a floating rate, typically based on the London Inter-bank Offered Rate (LIBOR) plus a stated interest margin. LIBOR is considered a benchmark rate and is an average of rates that global banks lend to each other. If the interest margin is above a certain level, it is considered a leveraged loan. Others base it on the rating, with loans rated below investment grade, which is categorized as Ba3, BB-, or lower from the rating agencies Moody's and S&P. KEY TAKEAWAYS A leveraged loan is a type of loan extended to companies or individuals that already have considerable amounts of debt or poor credit history. Lenders consider leveraged loans to carry a higher risk of default, and as a result, are more costly to the borrowers. Leveraged loans have higher interest rates than typical loans, which reflect the increased risk involved in issuing the loans.

what is a liability

A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.

what is a money market fund

A money market fund is a kind of mutual fund that invests only in highly liquid near-term instruments such as cash, cash equivalent securities, and high credit rating debt-based securities with a short-term, maturity—less than 13 months, such as U.S. Treasuries. As a result, these funds offer high liquidity with a very low level of risk.

what are mortgage backed securities

A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments. The MBS is a type of asset-backed security. As became glaringly obvious in the subprime mortgage meltdown of 2007-2008, a mortgage-backed security is only as sound as the mortgages that back it up. The investor who buys a mortgage-backed security is essentially lending money to home buyers. An MBS can be bought and sold through a broker. The minimum investment varies between issuers. This process works for all concerned as everyone does what they're supposed to do. That is, the bank keeps to reasonable standards for granting mortgages; the homeowner keeps paying on time, and the credit rating agencies that review MBS perform due diligence. In order to be sold on the markets today, an MBS must be issued by a government-sponsored enterprise (GSE) or a private financial company. The mortgages must have originated from a regulated and authorized financial institution. And the MBS must have received one of the top two ratings issued by an accredited credit rating agency. Types of Mortgage-Backed Securities There are two common types of MBSs: pass-throughs and collateralized mortgage obligations (CMO). Pass-Throughs Pass-throughs are structured as trusts in which mortgage payments are collected and passed through to investors. They typically have stated maturities of five, 15, or 30 years. The life of a pass-through may be less than the stated maturity depending on the principal payments on the mortgages that make up the pass-through. Collateralized Mortgage Obligations CMOs consist of multiple pools of securities which are known as slices, or tranches. The tranches are given credit ratings which determine the rates that are returned to investors.

mutual fund

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments. KEY TAKEAWAYS A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities. Mutual funds give small or individual investors access to diversified, professionally managed portfolios at a low price. Mutual funds are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek. Mutual funds charge annual fees (called expense ratios) and, in some cases, commissions, which can affect their overall returns. The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.

what are non-marketable securities

A non-marketable security is an asset that is difficult to buy or sell due to the fact that they are not traded on any major secondary market exchanges. Such securities, often forms of debt or fixed-income securities, are usually only bought and sold through private transactions or in an over-the-counter (OTC) market.

what is a promissory note

A promissory note is a financial instrument that contains a written promise by one party (the note's issuer or maker) to pay another party (the note's payee) a definite sum of money, either on demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer's signature. Although financial institutions may issue them (see below), promissory notes are debt instruments that allow companies and individuals to get financing from a source other than a bank. This source can be an individual or a company willing to carry the note (and provide the financing) under the agreed-upon terms. In effect, anyone becomes a lender when he issues a promissory note.

what is a prospectus

A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds. The document can help investors make more informed investment decisions because it contains a host of relevant information about the investment security. Companies must file a preliminary and final prospectus, and the SEC has specific guidelines as to what's listed in the prospectus for various securities. The preliminary prospectus is the first offering document provided by a security issuer and includes most of the details of the business and transaction. However, the preliminary prospectus doesn't contain the number of shares to be issued or price information. Typically, the preliminary prospectus is used to gauge interest in the market for the security being proposed. The final prospectus contains the complete details of the investment offering to the public. The final prospectus includes any finalized background information, as well as the number of shares or certificates to be issued and the offering price.

what is a reorganization

A reorganization is a significant and disruptive overhaul of a troubled business intended to restore it to profitability. It may include shutting down or selling divisions, replacing management, cutting budgets, and laying off workers. A supervised reorganization is the focus of the Chapter 11 bankruptcy process, during which a company is required to submit a plan for how it hopes to recover and repay some if not all of its obligations. Understanding Reorganization The function of a bankruptcy court is to give an insolvent company the chance to submit a reorganization plan. If approved, the company can continue to operate and postpone paying its most pressing debts until a later date. KEY TAKEAWAYS A court-supervised reorganization is the focus of Chapter 11 bankruptcy, which aims to restore a company to profitability and enable it to pay its debts. A company in financial trouble but not bankrupt may seek to revive the business through a reorganization. In either case, reorganization means drastic changes to the company's operations and management and steep cuts in spending. To get the approval of a bankruptcy judge, the reorganization plan must include drastic steps to reduce costs and increase revenue. If the plan is rejected or is approved but does not succeed, the company is forced into liquidation. Its assets will be sold and distributed to its creditors. A reorganization requires a restatement of the company's assets and liabilities as well as negotiations with major creditors to set schedules for repayment.

what is a rights offering

A rights offering (rights issue) is a group of rights offered to existing shareholders to purchase additional stock shares, known as subscription warrants, in proportion to their existing holdings. These are considered to be a type of option since it gives a company's stockholders the right, but not the obligation, to purchase additional shares in the company. In a rights offering, the subscription price at which each share may be purchased is generally discounted relative to the current market price. Rights are often transferable, allowing the holder to sell them in the open market. In direct rights offerings, there are no standby/backstop purchasers(purchasers willing to purchase unexercised rights) as the issuer only sells the number of exercised shares. If not subscribed properly, the issuer may be undercapitalized. Insured/standby rights offerings, usually the more expensive type, allow third-parties/backstop purchasers (e.g. investment banks) to purchase unexercised rights. The backstop purchasers agree to the purchase prior to the rights offering. This type of agreement ensures the issuing company that their capital requirements will be met. Companies generally offer rights when they need to raise money. Examples include when there is a need to pay off debt, purchase equipment, or acquire another company. In some cases, a company may use a rights offering to raise money when there are no other viable financing alternatives. Other significant benefits of a rights offering are that the issuing company can bypass underwriting fees, there is no shareholder approval needed, and market interest in the issuer's common stock generally peaks. For existing shareholders, rights offerings present the opportunity to purchase additional shares at a discount.

what is a risk premium

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment. For example, high-quality corporate bonds issued by established corporations earning large profits typically have very little risk of default. Therefore, such bonds pay a lower interest rate, or yield, than bonds issued by less-established companies with uncertain profitability and relatively higher default risk.

what is a roll up merger

A roll-up merger is when an investor, such as a private equity firm, buys up companies in the same market and merges them together. Roll-up mergers, also known as a "roll up" or a "rollup," combine multiple small companies into a larger entity that is better positioned to enjoy economies of scale. Private equityfirms use roll-up mergers to rationalize competition in crowded and/or fragmented markets and to combine companies with complementary capabilities into a full-service business, for instance, an oil exploration company can be combined with a drilling company and a refiner. They target large but highly fragmented industries lacking a dominant player. The consolidators have a proven process that creates value. The consolidators have a proven game plan for identifying targets, evaluating them, and then integrating them.

what is the difference between senior and junior bonds

A senior note is a type of bond that takes precedence over other debts in the event that the company declares bankruptcy and is forced into liquidation. Because they carry a lower degree of risk, senior notes pay lower rates of interest than junior bonds.

what is a straight bond

A straight bond is a bond that pays interest at regular intervals, and at maturity pays back the principal that was originally invested

what are subscription rights

A subscription right is the right of existing shareholders in a company to retain an equal percentage ownership by subscribing to new stock issuances at or below market prices. The subscription right is usually enforced by the use of rights offerings, which allow shareholders to exchange rights for shares of common stock at a price generally below what the stock is currently trading for. Subscription rights are also known as the "subscription privilege," "preemptive right," or "anti-dilution right" of the shareholder. A subscription rights issue increases the number of shares in the market, thus leading to a dilution in each share's value. Volume 75% 2:00 Stock Rights Issue KEY TAKEAWAYS Subscription rights allow a company's shareholders to retain an equal percentage of ownership when a company issues a secondary offering of its stock. A subscription right allows existing shareholders in a company to purchase shares of the secondary offering—usually at a discounted price—before shares are offered to investors in the broader market. If shareholders do not exercise their subscription rights during the specified time frame, their ownership will be diluted.

what is surplus

A surplus describes the amount of an asset or resource that exceeds the portion that's actively utilized. A surplus can refer to a host of different items, including income, profits, capital, and goods

what is a takeover

A takeover occurs when one company makes a successful bid to assume control of or acquire another. Takeovers can be done by purchasing a majority stake in the target firm. Takeovers are also commonly done through the merger and acquisition process. In a takeover, the company making the bid is the acquirer and the company it wishes to take control of is called the target. Takeovers are typically initiated by a larger company seeking to take over a smaller one. They can be voluntary, meaning they are the result of a mutual decision between the two companies. In other cases, they may be unwelcome, in which case the acquirer goes after the target without its knowledge or some times without its full agreement.

what are tax shelters

A tax shelter is a vehicle used by individuals or organizations to minimize or decrease their taxable incomes and, therefore, tax liabilities. Tax shelters are legal, and can range from investments or investment accounts that provide favorable tax treatment, to activities or transactions that lower taxable income through deductions or credits. Common examples of tax shelter are employer-sponsored 401(k) retirement plans and municipal bonds.

what is a venture capitalist

A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.

what is a vulture capitalist

A vulture capitalist is an investor who seeks to extract value from companies in decline. The goal is to swoop in when sentiment is low-and the company is trading at a rock bottom price-and take whatever action is necessary to engineer a quick turnaround and sell it on for a profit.

what is a write down

A write-down is an accounting term for the reduction in the book value of an asset when its fair market value (FMV) has fallen below the carrying book value, and thus becomes an impaired asset. The amount to be written down is the difference between the book value of the asset and the amount of cash that the business can obtain by disposing of it in the most optimal manner.

what is surplus adjustments

Adjusted surplus is one indication of an insurance company's financial health. It is the statutory surplus adjusted for a possible drop in asset values. Similar to owners equity or net worth, the statutory surplus is the excess of assets over liabilities as determined by the accounting treatment of assets and liabilities by state insurance regulators.

what is the difference between alpha and beta

Alpha measures the amount that the investment has returned in comparison to the market index or other broad benchmark that it is compared against. Beta measures the volatility of an investment. It is an indication of its relative risk. The alpha figure for a stock is represented as a single number, like 3 or -5. However, the number actually indicates the percentage above or below a benchmark index that the stock or fund price achieved. In this case, the stock or fund did 3% better and 5% worse, respectively, than the index. The baseline number for beta is one, which indicates that the security's price moves exactly as the market moves. A beta of less than 1 means that the security is less volatile than the market, while a beta greater than 1 indicates that its price is more volatile than the market. If a stock's beta is 1.5, it is considered to be 50% more volatile than the overall market.

what is an ASR (accelerated share repurchase program)

An accelerated share repurchase (ASR) is an investment strategy where a publicly-traded company expeditiously buys back large blocks of its outstanding shares from the market by relying on a go-between investment bank to facilitate the deal. To initiate such a campaign, a company must first furnish upfront cash to the investment bank. It must then enter into a forward contract, which is simply an agreement between two parties to purchase or sell a security at a future date, for a predetermined price. The investment bank, in turn, borrows shares of the company from individual investors on the market, in order to subsequently funnel those shares back to the company in question. Companies typically engage in ASR programs when they believe their stock shares are undervalued because this process tends to ultimately inflate the stock's value.

what is an adjustable rate mortgage

An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals. ARMs are also called variable-rate mortgages or floating mortgages. The interest rate for ARMs is reset based on a benchmark or index, plus an additional spread called an ARM margin.

what are adjustment bonds and why/when are they issued

An adjustment bond is issued by a corporation when it restructures its debts to cope with financial difficulties or potential bankruptcy. During a restructuring, holders of existing, outstanding bonds receive adjustment bonds. This issue allows for the consolidation of the debt obligation to the new bonds. Adjustment bonds become an alternative to bankruptcy if a company's financial difficulties make it difficult to make debt payments. BREAKING DOWN Adjustment Bond Adjustment bonds have a structure where interest payments happen only when the company has earnings. The company does not fall into default for unmade payments. This effectively recapitalizes the company's outstanding debt obligations. It also allows the company the chance to adjust terms such as interest rates and time to maturity giving the company a better opportunity to meet its commitments without entering bankruptcy.

what is an allotment

An allotment commonly refers to the allocation of shares granted to a participating underwriting firm during an initial public offering (IPO). Remaining surpluses go to other firms that have won the bid for the right to sell the remaining IPO shares. There are several types of allotment that arise when new shares are issued and allocated to either new or existing shareholders. KEY TAKEAWAYS An allotment commonly refers to the allocation of shares granted to a participating underwriting firm during an initial public offering (IPO). In business, allotment describes a systematic distribution of resources across different entities and over time. A stock split is a form of allotment in which the company allocates shares proportionately based on existing ownership, The number one reason a company issues new shares for allotment is to raise money to finance business operations.

what are anti-takeover measures

An anti-takeover measure is any action that is taken on a continual or sporadic basis by a firm's management to prevent or deter unwanted takeovers by another firm or group of investors. The attempts of an acquiring company are usually known as a hostile takeover, as it is unwanted by the target company, and so the target company must employ defensive measures to prevent the takeover from happening. KEY TAKEAWAYS An anti-takeover measure is any action taken by a company to prevent it from being acquired by another company. Acquiring companies may wish to purchase a company to reduce competition, increase market share, or to run it better to make it more profitable. Anti-takeover measures can be continuous, as part of the business plan, or sporadic, occurring only when a company believes it might be acquired. To take over a company, an acquirer looks to purchase a majority percentage of outstanding shares, gaining voting control. Common anti-takeover measures include the Pac-Man Defense, the Macaroni Defense, and the poison pill. Anti-takeover measures seek to make the stock less appealing, more expensive, or otherwise difficult to push votes through to approve a takeover.

what are the different asset classes

An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace. Historically, the three main asset classes have been equities (stocks), fixed income (bonds), and cash equivalent or money market instruments.1 Currently, most investment professionals include real estate, commodities, futures, other financial derivatives, and even cryptocurrencies to the asset class mix. Investment assets include both tangible and intangible instruments which investors buy and sell for the purposes of generating additional income on either a short- or a long-term basis.

what are assets

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.

what is an emerging market fund

An emerging market fund refers to a fund that invests the majority of its assets in securities from countries with economies that are considered to be emerging. Funds that specialize in emerging markets range from mutual funds to exchange-traded funds (ETFs). These countries are in an emerging growth phase and offer high potential return with higher risks than developed market countries. KEY TAKEAWAYS Emerging market funds invest the majority of their assets in securities from countries with developing economies. These funds are mutual funds or ETFs that invest in emerging market debt or equity to build diversified fund offerings for investors. Emerging market funds offer a range of options across the risk spectrum, and are generally attractive investments for growth investors.

what are equity securities

An equity security represents ownership interest held by shareholders in an entity (a company, partnership or trust), realized in the form of shares of capital stock, which includes shares of both common and preferred stock.

what is an income bond

An income bond is a type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments paid only if the issuing company has enough earnings to pay for the coupon payment.

what is an index fund

An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover. These funds follow their benchmark index regardless of the state of the markets. Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts (IRAs) and 401(k) accounts. Legendary investor Warren Buffett has recommended index funds as a haven for savings for the later years of life. Rather than picking out individual stocks for investment, he has said, it makes more sense for the average investor to buy all of the S&P 500 companies at the low cost an index fund offers. KEY TAKEAWAYS An index fund is a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index. Index funds have lower expenses and fees than actively managed funds. Index funds follow a passive investment strategy. Index funds seek to match the risk and return of the market, on the theory that in the long-term, the market will outperform any single investment.

what is a primary market exchange.

An initial public offering, or IPO, is an example of a primary market. These trades provide an opportunity for investors to buy securities from the bank that did the initial underwriting for a particular stock.

what are intangible assets

An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.

what is an interest rate swap

An interest rate swap is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap.

what is an offsetting transaction in the options market

An offsetting transaction is an activity that cancels out the risks and benefits of another position or transaction. Offsetting can mean closing a position, if possible, but can also mean taking the opposite position in the same (or as close as possible) instrument.

what is an options premium

An option premium is the current market price of an option contract. It is thus the income received by the seller (writer) of an option contract to another party. In-the-money option premiums are composed of two factors: intrinsic and extrinsic value. Out-of-the-money options' premiums consist solely of extrinsic value. For stock options, the premium is quoted as a dollar amount per share, and most contracts represent the commitment of 100 shares

why do people write options if they can only make a small return (the premium) in comparison to the buyer

An option writer makes a comparatively smaller return if the option trade is profitable. This is because the writer's return is limited to the premium, no matter how much the stock moves. So why write options? Because the odds are typically overwhelmingly on the side of the option writer. A study in the late 1990s, by the Chicago Mercantile Exchange (CME), found that a little over 75% of all options held to expiration expired worthless.

what determines an options premium

An option's premium is the combination of its intrinsic value and time value. Intrinsic value is the in-the-money amount of an options contract, which, for a call option, is the amount above the strike price that the stock is trading. Time value represents the added value an investor has to pay for an option above the intrinsic value. This is the extrinsic value or time value. So, the price of the option in our example can be thought of as the following:

what is an oversubscription privilege

An oversubscription privilege gets extended to a company's shareholders on the issuance of a rights or warrants offering. The privilege allows shareholders to purchase any shares remaining after other shareholders have had an opportunity to purchase them.

how do you determine what option strategy to use in a given situation

Are you bullish or bearish on the stock, sector, or the broad market that you wish to trade? If so, are you rampantly, moderately, or just a tad bullish/bearish? Is the market calm or quite volatile? How about Stock ZYX? If the implied volatility for ZYX is not very high (say 20%), then it may be a good idea to buy calls on the stock, since such calls could be relatively cheap. As you are rampantly bullish on ZYX, you should be comfortable with buying out of the money calls. Assume you do not want to spend more than $0.50 per call option, and have a choice of going for two-month calls with a strike price of $49 available for $0.50, or three-month calls with a strike price of $50 available for $0.47. You decide to go with the latter since you believe the slightly higher strike price is more than offset by the extra month to expiration. What if you were only slightly bullish on ZYX, and its implied volatility of 45% was three times that of the overall market? In this case, you could consider writing near-term puts to capture premium income, rather than buying calls as in the earlier instance.

what macroeconomic factor heavily influences bond pricing

As a result, bond prices vary inversely with interest rates, falling when rates go up and vice-versa.

how should you strategize your expiration dates when you are the holder? what about when you are the underwriter.

As an option buyer, your objective should be to purchase options with the longest possible expiration, in order to give your trade time to work out. Conversely, when you are writing options, go for the shortest possible expiration in order to limit your liability.

what is a pyramid shaped capital structure

As the name suggests, a pyramid shaped capital structure has a large proportion consisting of equity capital and retained earnings which have been ploughed back into the firm over a considerably large period of time. The cost of share capital and the retained earnings of the firm are usually lower than the cost of debt. This structure is indicative of risk averse conservative firms. They have a high proportion of equity and considerably a very low proportion of debt.

how are bonds backed by the issuer

Backing for bonds is typically the payment ability of the issuer to generate revenue, although physical assets may also be used as collateral.

what is backwardation

Backwardation is when the current price—spot—price of an underlying asset is higher than prices trading in the futures market. it usually occurs when an asset price is expected to fall over time

what are basis points

Basis points, otherwise known as bps or "bips," are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. Likewise, a fractional basis point such as 1.5 basis points is equivalent to 0.015% or 0.00015 in decimal form. In most cases, basis points refer to changes in interest rates and bond yields. KEY TAKEAWAYS Basis points, otherwise known as bps or "bips," are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In the bond market, a basis point is used to refer to the yield that a bond pays to the investor.

what bonds are more risky government or corporate bonds. as a result what is the interest rate like when comparing the two.

Because corporate bonds are typically seen as riskier than government bonds, they usually have higher interest rates.

why do those who are closer to retirement want more bonds in their portfolio than stocks

Bond prices tend to be less volatile than stocks and they often responds more to interest rate changes than other market conditions. This is why investors looking for safety and income often prefer bonds over stocks as they get closer to retirement.

how to bond investors make money

Bonds also typically pay regular interest payments to investors, and return the full principal loaned when the bond matures.

how are bonds rated so consumers/loaners/investors/speculators can make decisions

Bonds are rated by popular agencies like Standard and Poor's, and Moody's. Each agency has slightly different ratings scales, but the highest rating is AAAwith the lowest being C or D, depending on the agency. The top four ratings are considered safe or investment grade, while anything below BBB for S&P and Baa3 for Moody's is considered "high yield" or "junk" bonds.

who issues bonds

Bonds represent the debts of issuers, such as companies or governments.

how do bonds priced at a premium and a discount differ in terms of how much they yield to the creditor.

Bonds that are priced lower have higher yields. They are more attractive to investors, all other things being equal. For instance, a $1,000 face value bond with a 6% interest rate pays $60 in annual interest every year regardless of the current trading price. Interest payments are fixed. When the bond is currently trading at $800, that $60 interest payment creates a present yield of 7.5%. Bonds with higher yields and lower prices usually have lower prices for a reason. These high-yield bonds are also called junk bonds because of their higher risks. bonds that are priced higher (at a premium) have lower yields since interest is being paid on the 1000 dollar face value not the premium which you paid for.

what is book value per common share

Book value per common share (or, simply book value per share - BVPS) is a method to calculate the per-share book value of a company based on common shareholders' equity in the company. The book value of a company is the difference between that company's total assets and total liabilities, and not its share price in the market. Should the company dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid. KEY TAKEAWAYS Book value per common share (BVPS) calculates the common stock per-share book value of a firm. Since preferred stockholders have a higher claim on assets and earnings than common shareholders, preferred equity is subtracted from shareholder's equity to derive the equity available to common shareholders. If a company's BVPS is higher than its market value per share, then its stock may be considered to be undervalued.

do holders of options have a choice if they want to sell or buy

Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice to exercise their rights. This limits the risk of buyers of options to only the premium spent.

what is call money

Call money, also known as "money at call," is a short-term financial loan that is payable immediately, and in full, when the lender demands it. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule, nor does the lender have to provide any advanced notice of repayment. Dealing in call money allows banks the opportunity to earn interest on surplus funds. On the counterparty side, brokerages understand that they are taking on additional risk by using funds that can be called at any time, so they typically use call money for short-term transactions that will be resolved quickly. Call money and short notice money are similar, as both are short term loans between financial institutions. Call money must be repaid immediately when called by the lender. Alternatively, short notice money is repayable up to 14 days after notice is given by the lender.

what is cal risk in bonds

Call risk is the risk that the bond, an investor has invested in, will be redeemed by the issuer before its maturity date, thereby raising the risk for the investor as he would have to reinvest the redeemed amount at a much lower rate or in an unfavorable investing market scenario.

are writers obligated to buy/sell (options)

Call writers and put writers (sellers), however, are obligated to buy or sell if the option expires in-the-money (more on that below). This means that a seller may be required to make good on a promise to buy or sell. It also implies that option sellers have exposure to more, and in some cases, unlimited, risks. This means writers can lose much more than the price of the options premium.

what is capitalized stock

Capital stock is the amount of common and preferred shares that a company is authorized to issue, according to its corporate charter. Capital stock can only be issued by the company and is the maximum number of shares that can ever be outstanding. The amount is listed on the balance sheet in the company's shareholders' equity section. KEY TAKEAWAYS Capital stock is the amount of common and preferred shares that a company is authorized to issue—recorded on the balance sheet under shareholders' equity. The amount of capital stock is the maximum amount of shares that a company can ever have outstanding. Issuing capital stock allows a company to raise money without incurring debt. The drawbacks of issuing capital stock are that the company relinquishes more control and dilutes the value of outstanding shares.

what is the difference between carrying and fair value

Carrying value and fair value are two different accounting measures used to determine the value of a company's assets. The carrying value, or book value, is an asset value based on the company's balance sheet, which takes the cost of the asset and subtracts its depreciation over time. The fair value of an asset is usually determined by the market and agreed upon by a willing buyer and seller, and it can fluctuate often. In other words, the carrying value generally reflects equity, while the fair value reflects the current market price.

What is difference between cash and stock dividends

Cash dividends is cash paid out for dividends but share dividends are dividends in the form of extra shares of the company gifted on the dividend issue date(typically fractional shares)

what are cash equivalents

Cash equivalents, also known as "cash and equivalents," are one of the three main asset classes in financial investing, along with stocks and bonds. These securities have a low-risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper, and other money market instruments. KEY TAKEAWAYS Cash equivalents are the total value of cash on hand that includes items that are similar to cash; cash and cash equivalents must be current assets.

what is cash flow

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company's ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow (FCF). KEY TAKEAWAYS Positive cash flow indicates that a company is adding to its cash reserves, allowing it to reinvest in the company, pay out money to shareholders, or settle future debt payments. Cash flow comes in three forms: operating, investing, and financing. Operating cash flow includes all cash generated by a company's main business activities. Investing cash flow includes all purchases of capital assets and investments in other business ventures. Financing cash flow includes all proceeds gained from issuing debt and equity as well as payments made by the company. Free cash flow, a measure commonly used by analysts to assess a company's profitability, represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

what is the difference between class A and class B stock

Class A shares are common stocks, as are the vast majority of shares issued by a public company. Common shares are an ownership interest in a company and entitle their purchasers to a portion of the profits earned. Investors in common shares are usually given at least one vote for each share they hold. This entitles the owners to vote at annual meetings, where board members are elected, company decisions are made, and shareholders are allowed to voice their concerns. If a company falls into bankruptcy and is forced to liquidate, common stock shareholders are last in line for compensation. Class B Shares Theoretically, a company can create any number of classes of shares of common stock. In reality, the decision is usually made in order to concentrate voting power within a certain group of people. When more than one class of stock is offered, companies traditionally designate them as Class A and Class B, with Class A carrying more voting rights than Class B shares. Class A shares may offer 10 voting rights per stock held, while class B shares offer only one. It depends on how the company decides to structure its stock. Special Considerations Setting aside the issue of voting rights, different classes of common stock almost always carry the same equity interest in a company. Therefore, shareholders of all classes have the same rights to share in company profits. That is, they have the right to share in any dividends that are approved by the board of directors. For most investors, voting clout doesn't matter much as long as they believe those with more clout are making the right decisions. It may begin to matter if they feel the company is going off-course and they don't have the votes to help force a change. Key Differences The difference between Class A and Class B stock is vividly demonstrated by the classes of stock issued by Berkshire Hathaway, the company run by legendary investor Warren Buffett.2 The company's Class B stock traded at $208.96 as of March 5, 2020, while its Class A stock was valued at $315,000.3 4 For many years, Buffett refused to allow a stock split while its price rose into the stratosphere. He preferred to concentrate voting power in the hands of relatively few investors. In 1996, he finally decided to create a Class B to attract small investors.5 There's no substantive difference between the two stocks, except that a share of Class B stock has 1/1500th the value of a Class A share and a corresponding fraction of its voting power.2 About Preferred Stock Class B stock should not be confused with preferred stock.6 Preferred shares are a different type of asset. In fact, they are a kind of hybrid between a stock and a bond. Generally, owners of preferred stock are entitled to a dividend, and it must be paid out before any dividends are paid to the owners of common stock. In addition, preferred stock owners have repayment priority over common stockholders in the event of the company's liquidation. Preferred stocks are far less volatile than common stocks. That fact, and the guaranteed dividend, makes them a popular choice for conservative investors and retirees seeking an income supplement. SPONSORED

what is commercial paper

Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days.1 Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.

what is a price to book ratio

Companies use the price-to-book ratio (P/B ratio) to compare a firm's market capitalization to its book value. It's calculated by dividing the company's stock price per share by its book value per share (BVPS). An asset's book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation. Book value is also the tangible net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses, such as trading costs, sales taxes, and service charges. Some people may know this ratio by its less common name, price-equity ratio. KEY TAKEAWAYS The P/B ratio measures the market's valuation of a company relative to its book value. The market value of equity is typically higher than the book value of a company, P/B ratio is used by value investors to identify potential investments.

what is contango

Contango is a situation where the futures price of a commodity is higher than the spot price. Contango usually occurs when an asset price is expected to rise over time.

what does it mean when someone says that futures contracts are standardized

Contracts are standardized. For example, one oil contract on the Chicago Mercantile Exchange (CME) is for 1,000 barrels of oil.1 Therefore, if someone wanted to lock in a price (selling or buying) on 100,000 barrels of oil, they would need to buy/sell 100 contracts. To lock in a price on one million barrels of oil/they would need to buy/sell 1,000 contracts.

convertible preference (preferred)

Convertible preference: shares are those which can be converted to common stock. The conversion ration is specified when the shares are issued.

corporate bonds

Corporate bonds are debt securities issued by corporations. Interest is generally paid semi-annually. The investor receives the face amount of the bond at the bond's maturity date. Interest rates depend on the creditworthiness of the issuing company and the duration of the bond. The bond's duration is the length of time until the maturity date. Longer duration bonds pay higher rates of interest, as the investor is assuming greater risk. Some corporate bonds have a call feature, where the corporation has the right to repurchase the bond at a specific date prior to the bond's maturity.

cumulative preferred stock

Cumulative: dividends accrue (add up) if the company does not pay dividends in one or more periods. When the dividend is paid in the subsequent years, the unpaid dividends accrue and are paid to preferred shares first before common shares.

what is a foreign currency translation

Currency translation is the process of converting the financial results of a parent company's foreign subsidiaries into its functional currency. Companies must report using the currency of the environment in which it primarily generates and expends cash. Currency translations use the exchange rate at the end of the reported period for assets and liabilities, the exchange rate on the date that income or an expense was recognized for the income statement and a historical exchange rate at the date of entry to shareholder equity.

what is a consolidation loan

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others.

what are debt securities

Debt securities are debt instruments of corporations, governments, governmental agencies, or other organizations. Each one is essentially a sophisticated form of IOU: organizations issue debt securities to raise capital, promising interest income in exchange for the use of this money. Most debt securities pay interest at a fixed rate until the maturity date, when the principal is returned, and for that reason are sometimes called fixed income securities. Common types of debt securities include corporate bonds, municipal bonds, and treasury notes. interest in bonds are typically paid semi-annually but every loan is different so read the terms.

what is default

Default is the failure to repay a debt including interest or principal on a loan or security. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments. Individuals, businesses, and even countries can fall prey to default if they cannot keep up their debt obligations.

what is deferred revenue

Deferred revenue refers to payments received in advance for services which have not yet been performed or goods which have not yet been delivered. These revenues are classified on the company's balance sheet as a liability and not as an asset.

on an options table what does delta mean

Delta can be thought of as a probability. For instance, a 30-delta option has roughly a 30% chance of expiring in-the-money. Delta also measures the option's sensitivity to immediate price changes in the underlying. The price of a 30-delta option will change by 30 cents if the underlying security changes its price by one dollar.

what is discounted cash flow

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. This applies to both financial investments for investors and for business owners looking to make changes to their businesses, such as purchasing new equipment. KEY TAKEAWAYS Discounted cash flow (DCF) helps determine the value of an investment based on its future cash flows. The present value of expected future cash flows is arrived at by using a discount rate to calculate the discounted cash flow (DCF). If the discounted cash flow (DCF) is above the current cost of the investment, the opportunity could result in positive returns. Companies typically use the weighted average cost of capital for the discount rate, as it takes into consideration the rate of return expected by shareholders. The DCF has limitations, primarily that it relies on estimations on future cash flows, which could prove to be inaccurate.

what does duration mean in bonds and what affects the duration of a bond

Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. A bond's duration is easily confused with its term or time to maturity because they are both measured in years. However, a bond's term is a linear measure of the years until repayment of principal is due; it does not change with the interest rate environment. Duration, on the other hand is non-linear and accelerates as time to maturity lessens. How Duration Works Duration measures how long it takes, in years, for an investor to be repaid the bond's price by the bond's total cash flows. At the same time, duration is a measure of sensitivity of a bond's or fixed income portfolio's price to changes in interest rates. In general, the higher the duration, the more a bond's price will drop as interest rates rise (and the greater the interest rate risk). As a general rule, for every 1% change in interest rates (increase or decrease), a bond's price will change approximately 1% in the opposite direction, for every year of duration. If a bond has a duration of five years and interest rates increase 1%, the bond's price will drop by approximately 5% (1% X 5 years). Likewise, if interest rates fall by 1%, the same bond's price will increase by about 5% (1% X 5 years). Certain factors can affect a bond's duration, including: Time to maturity. The longer the maturity, the higher the duration, and the greater the interest rate risk. Consider two bonds that each yield 5% and cost $1,000, but have different maturities. A bond that matures faster—say, in one year—would repay its true cost faster than a bond that matures in 10 years. Consequently, the shorter-maturity bond would have a lower duration and less risk. Coupon rate. A bond's coupon rate is a key factor in calculation duration. If we have two bonds that are identical with the exception on their coupon rates, the bond with the higher coupon rate will pay back its original costs faster than the bond with a lower yield. The higher the coupon rate, the lower the duration, and the lower the interest rate risk

what is the difference between earnings per share and diluted earnings per share

Earnings per share (EPS) and diluted EPS are profitability measures used in the fundamental analysis of companies. EPS only takes into account a company's common shares, whereas diluted EPS takes into account all convertible securities such as convertible bonds or convertible preferred stock, which are changed into equity or common stock.1

what is earnings per share

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution. The higher a company's EPS, the more profitable it is considered.

what is enterprise value

Enterprise value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt as well as any cash on the company's balance sheet. Enterprise value is a popular metric used to value a company for a potential takeover.

what is enterprise value to sales

Enterprise value-to-sales (EV/sales) is a financial valuation measure that compares the enterprise value (EV) of a company to its annual sales. The EV/sales multiple gives investors a quantifiable metric of how to value a company based on its sales, while taking account of both the company's equity and debt. KEY TAKEAWAYS Enterprise value-to-sales (EV/sales) is a financial ratio that measures how much it would cost to purchase a company's value in terms of its sales. A lower EV/sales multiple indicates that a company is more attractive investment as it may be relatively undervalued. The EV/sales measure can also be negative when the cash balance of the company is greater than the market capitalization and debt structure, signaling that the company can essentially be bought with its own cash.

what is amortization

First, amortization is used in the process of paying off debt through regular principal and interest payments over time. An amortization schedule is used to reduce the current balance on a loan, for example a mortgage or car loan, through installment payments. Second, amortization can also refer to the spreading out of capital expenses related to intangible assets over a specific duration—usually over the asset's useful life—for accounting and tax purposes.

what is shareholders equity

For corporations, shareholder equity (SE), also referred to as shareholders' equity and stockholders' equity, is the corporation's owners' residual claim on assets after debts have been paid. Equity is equal to a firm's total assets minus its total liabilities. Retained earnings is part of shareholder equity and is the percentage of net earnings that were not paid to shareholders as dividends. Retained earnings should not be confused with cash or other liquid assets. This is because years of retained earnings could be used for either expenses or any asset type to grow the business. Shareholders' equity for a company that is a going concern is not the same as liquidation value. In liquidation, physical asset values have been reduced and other extraordinary conditions exist.

what macroeconomic factors do many investors look for when trying to "guess" when a bear market will end

For most investors—especially the large institutional ones, which control trillions of investment dollars—positive expectations are most driven by the anticipation of strong GDP growth, low inflation, and low unemployment. So if these types of economic indicators are strong despite a drop in markets, a bear market won't last long.

free cash flow yield

Free cash flow yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share. The ratio is calculated by taking the free cash flow per share divided by the current share price. Generally, the lower the ratio, the less attractive a company is as an investment, because it means investors are putting money into the company but not receiving a very good return in exchange. A high free cash flow yield result means a company is generating enough cash to easily satisfy its debt and other obligations, including dividend payouts.

what is funded debt

Funded debt is a company's debt that matures in more than one year or one business cycle. This type of debt is classified as such because it is funded by interest payments made by the borrowing firm over the term of the loan. Funded debt is also called long-term debt since the term exceeds 12 months.

what is the difference between a future and a forward contract

Futures contracts are standardized, unlike forward contracts. Forwards are similar types of agreements that lock in a future price in the present, but forwards are traded over-the-counter (OTC) and have customizable terms that are arrived at between the counterparties. Futures contracts, on the other hand, will each have the same terms regardless of who is the counterparty.

what bonds are more liquid large or small company bonds

Generally speaking, the stocks and bonds of large, well-financed companies tend to be more liquid than those of smaller companies. The reason for this is simple — larger companies are perceived as having a greater ability to repay their debts.

what is going concern value

Going concern value is a value that assumes the company will remain in business indefinitely and continue to be profitable. Going concern value is also known as total value. This differs from the value that would be realized if its assets were liquidated—the liquidation value—because an ongoing operation has the ability to continue to earn a profit, which contributes to its value. A company should always be considered a going concern unless there is a good reason to believe that it will be going out of business. KEY TAKEAWAYS Going-concern value is the idea that a company will continue to be in business and be profitable. Goodwill is the difference between going-concern value and liquidation value. Going-concern value is often higher than the liquidation value. How Going-Concern Value Works The difference between the going-concern value of a company and its liquidation value is known as goodwill. Goodwill consists of intangible assets, such as company brand names, trademarks, patents and customer loyalty. Typically the going-concern value will be greater than the liquidation value. When a company is acquired, the purchase price is typically based on its going-concern value. This means that a company being acquired can charge a pricing premium that is higher than the value of its assets and takes into account the value of its future profitability, intangible assets, and goodwill.

what is goodwill

Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. The value of a company's brand name, solid customer base, good customer relations, good employee relations, and proprietary technology represent some reasons why goodwill exists. KEY TAKEAWAYS Goodwill is an intangible asset that accounts for the excess purchase price of another company. Items included in goodwill are proprietary or intellectual property and brand recognition, which are not easily quantifiable. Goodwill is calculated by taking the purchase price of a company and subtracting the difference between the fair market value of the assets and liabilities. If the fair value of Company ABC's assets minus liabilities is $12 billion, and a company purchases Company ABC for $15 billion, the premium value following the acquisition is $3 billion. This $3 billion will be included on the acquirer's balance sheet as goodwill.

what is greenmailing

Greenmail is the practice of buying enough shares in a company to threaten a hostile takeover so that the target company will instead repurchase its shares at a premium.

what is gross margin

Gross margin is a company's net sales revenue minus its cost of goods sold (COGS). In other words, it is the sales revenue a company retains after incurring the direct costs associated with producing the goods it sells, and the services it provides. The higher the gross margin, the more capital a company retains on each dollar of sales, which it can then use to pay other costs or satisfy debt obligations.

what is gross margin

Gross margin is a company's net sales revenue minus its cost of goods sold (COGS). In other words, it is the sales revenue a company retains after incurring the direct costs associated with producing the goods it sells, and the services it provides. The higher the gross margin, the more capital a company retains on each dollar of sales, which it can then use to pay other costs or satisfy debt obligations. The net sales figure is simply gross revenue, less the returns, allowances, and discounts.

what does buffett look for when picking stocks in a bear market

He focuses on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price. Buffett looks for businesses with "a durable competitive advantage." What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source. The candidate company has to be in a good and growing economy or industry. It must enjoy a consumer monopoly or have a loyalty-commanding brand. It cannot be vulnerable to competition from anyone with abundant resources. Its earnings have to be on an upward trend with good and consistent profit margins. The company must enjoy a low debt/equity ratio or a high earnings/debt ratio. It must have high and consistent returns on invested capital. The company must have a history of retaining earnings for growth. It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow. The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments. The company must be free to adjust prices for inflation.

what increases a stocks spread

High volatility or a lack of liquidity in a security will tend to increase the size of the market-maker spread.

what is the difference between high yield/junk bonds and investment grade bonds

High-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investment-grade bonds to compensate investors.

when are dividends paid

How Often are Dividends Paid? The vast majority of dividends are paid four times a year on a quarterly basis, but some companies pay their dividends semi-annually (twice a year), annually (once a year), monthly, or more rarely, on no set schedule whatsoever (called "irregular" dividends).

why may callable bonds be bad for the investor if they are called

However, the investor might not make out as well as the company when the bond is called. For example, let's say a 6% coupon bond is issued and is due to mature in five years. An investor purchases $10,000 worth and receives coupon payments of 6% x $10,000 or $600 annually. Three years after issuance, the interest rates fall to 4%, and the issuer calls the bond. The bondholder must turn in the bond to get back the principal, and no further interest is paid. In this scenario, not only does the bondholder lose the remaining interest payments but it would be unlikely they will be able to match the original 6% coupon. This situation is known as reinvestment risk. The investor might choose to reinvest at a lower interest rate and lose potential income. Also, if the investor wants to purchase another bond, the new bond's price could be higher than the price of the original callable. In other words, the investor might pay a higher price for a lower yield. As a result, a callable bond may not be appropriate for investors seeking stable income and predictable returns.

what is a hybrid security

Hybrid securities, often referred to as "hybrids," generally combine both debt and equity characteristics. The most common type of hybridsecurity is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.

difference between a private placement and IPO

IPO is public financing and private placement is public financing

what is a calendar spread

If you buy and sell options with different expirations, it is known as a calendar spread or time spread.

redemption price

In finance, redemption describes the repayment of any money market fixed-income security at or before the asset's maturity date. Investors can make redemptions by selling part or all of their investments such as shares, bonds, or mutual funds. People who invest in fixed-income securities receive regular interest payments at a fixed value. These instruments can be redeemed before or on the maturity date. If redeemed at the time of maturity, an investor receives the par value or the face value of the security. Corporations that issue bonds or other securities may pay investors a redemption value when they buy back their securities on or before the maturity date. Interest payments generally stop before they do this. The redemption value is typically higher than a bond's par value. So, redemption of these bonds, referred to as called bonds, is at a premium price above par.

what are bonds relative yield and how does it change as the maturity date is lengthened

In most interest rate environments, the longer the term to maturity, the higher the yield will be. This makes intuitive sense because the longer the period of time before cash flow is received, the greater the chance is that the required discount rate (or yield) will move higher.

what is a non cash adjustment

In order to adjust to the cash flows from accrual basis to a basis that reflects the change in the cash position of the company, the cash flow statement compensates for the effect of all transactions that did not involve the use of cash during the period. This is what is known as a noncash adjustment. The most common noncash adjustment involves depreciation. Depreciation expense is a write-down in the value of assets held by the business. However, while depreciation expense reduce the net profits of a business, it does not involve a cash outlay. As a result, a noncash adjustment must be made to add back to net profit or loss the effect of the depreciation expense. Other Common Noncash Adjustments Other common noncash adjustments include an add-back for amortization expense. This is similar to depreciation expense, but reduces the accounting value of intangible assets. Income tax expense on an IFRS or GAAP basis differs from income tax actually paid. A noncash adjustment must be made for this difference. A third common difference involves foreign currency translation gains or losses. Foreign assets or liabilities must be often adjusted to the current value under IFRS or GAAP. This creates a gain or loss for which no cash is exchanged. As a result, a noncash adjustment must be made to compensate.

why would the price of an option increase

In terms of valuing option contracts, it is essentially all about determining the probabilities of future price events. The more likely something is to occur, the more expensive an option would be that profits from that event. For instance, a call value goes up as the stock (underlying) goes up.

what is the difference between simple and compound interest

In the case of compound interest, the interest is calculated on the initial principal and also on the accumulated interest of previous periods of a deposit. Compound interest can be thought of as "interest on interest," and it will make the invested money grow to a higher amount at a faster rate compared to that from the simple interest, which is calculated only on the principal amount. Simple interest is determined by multiplying the daily interest rate by the principal amount and by the number of days that elapse between payments. It is used for calculating interest on investments where the accumulated interest is not added back to the principal.

do bond orders have the first, last, middle (between who?) claim to a company's assets if it goes bankrupt

In the event of bankruptcy, bond investors have the first claim to a company's assets. In other words, at least theoretically, they have a better chance of being made whole if the underlying company goes out of business. To determine what type of bond you own, check the certificate if possible. It will likely say the words "senior note," or indicate the bond's status in some other fashion on the document.

what is disclosure and what are the rules for it for u.s companies

In the financial world, disclosure refers to the timely release of all information about a company that may influence an investor's decision. It reveals both positive and negative news, data, and operational details that impact its business. Similar to disclosure in the law, the concept is that all parties should have equal access to the same set of facts in the interest of fairness. The Securities and Exchange Commission (SEC) develops and enforces disclosure requirements for all firms incorporated in the U.S. Companies that are listed on the major U.S. stock exchanges must follow the SEC's regulations.

how does inflation affect bonds

Inflation is a bond's worst enemy. Inflation erodes the purchasing power of a bond's future cash flows. Put simply, the higher the current rate of inflation and the higher the (expected) future rates of inflation, the higher the yields will rise across the yield curve, as investors will demand this higher yield to compensate for inflation risk.

how to institutional investors complete large orders without affecting the market

Institutional investors face the challenge of completing massive orders (often millions of shares) at a minimum cost. An institutional investor that exposes an order for a large number of shares can expect the price to jump immediately, so they may instead attempt to gradually work the order in small pieces over several days or weeks. Day traders will frequently try to buy or sell in advance of large working institutional orders if they can identify a large order in progress.

what does it mean to harvest tax losses

Investors who hold securities that have depreciated substantially from their purchase price may find a silver lining in some cases. If you sell your losers while they are down and wait 31 days before buying them back, you can realize a capital loss that you can report on your tax return for that year while maintaining your portfolio allocation. You can then write these losses off against any capital gains that you realized for that year up to the full amount of the losses. For example, if you have a single stock that did well and received a $10,000 gain, and then you were able to realize $5,000 in losses, you could net that loss against the gain and only report a $5,000 gain for the year. But if those numbers were reversed and you had a $5,000 net loss for the year, IRS regulations only allow you to declare up to $3,000 of losses on your return against other types of income. So you would report that amount for that year and the remaining $2,000 the following year. Harvesting tax losses may provide another opportunity for you to improve your portfolio if you sold individual securities for a loss and are waiting for the necessary 31-day window to elapse before you dive back in (if you buy back the same security sooner than this, the IRS will disallow the loss under the wash-sale rules). But you might be wise to buy an ETF that invests in the same sector as the holding you liquidated instead of just buying back that same security. You would not have to wait 31 days to do this since you are not buying back an identical security and you would also further diversify your portfolio.

explain harvesting tax losses and the wash sale rule when dealing with capital losses to benefit tax wise

It's never fun to lose money on an investment, but declaring a capital loss on your tax return can be an effective consolation prize in many cases. Capital losses have limited impact on earned income in subsequent tax years, but they can be fully applied against future capital gains. Investors who understand the rules of capital losses can often generate useful deductions with a few simple strategies. KEY TAKEAWAYS A capital loss—when a security is sold for less than the purchase price—can be used to reduce the tax burden of future capital gains. There are three types of capital losses—realized losses, unrealized losses, and recognizable gains. Capital losses make it possible for investors to recoup at least part of their losses on their tax returns by offsetting capital gains and other forms of income. The Basics Capital losses are, of course, the opposite of capital gains. When a security or investment is sold for less than its original purchase price, then the dollar amount of difference is considered a capital loss. For tax purposes, capital losses are only reported on items that are intended to increase in value. They do not apply to items used for personal use such as automobiles (although the sale of a car at a profit is still considered taxable income). Tax Rules Capital losses can be used as deductions on the investor's tax return, just as capital gains must be reported as income. Unlike capital gains, capital losses can be divided into three categories: Realized losses occur on the actual sale of the asset or investment. Unrealized losses are not reported. Recognizable losses are the amount of a loss that can be declared in a given year. Any loss can be netted against any capital gain realized in the same tax year, but only $3,000 of capital loss can be deducted against earned or other types of income in the year. Remaining capital losses can then be deducted in future years up to $3,000 a year, or a capital gain can be used to offset the remaining carry-forward amount. For example, an investor buys a stock at $50 a share in May. By August, the share price has dropped to $30. The investor has an unrealized loss of $20 per share. They hold the stock until the following year, and the price climbs to $45 per share. The investor sells the stock at that point and realizes a loss of $5 per share. They can only report that loss in the year of sale; they cannot report the unrealized loss from the previous year. Another category is recognizable gains. Although all capital gains realized in a given year must be reported for that year, there are some limits on the amount of capital losses that may be declared in a given year in some cases. While any loss can ultimately be netted against any capital gain realized in the same tax year, only $3,000 of capital loss can be deducted against earned or other types of income in a given year.1 For example, Frank realized a capital gain of $10,000 in 2013. He also realized a loss of $30,000. He will be able to net $10,000 of his loss against his gain, but can only deduct an additional $3,000 of loss against his other income for that year. He can deduct the remaining $17,000 of loss in $3,000 increments every year from then on until the entire amount has been deducted. However, if he realizes a capital gain in a future year before he has exhausted this amount, then he can deduct the remaining loss against the gain. So if he deducts $3,000 of loss for the next two years and then realizes a $20,000 gain, he can deduct the remaining $11,000 of loss against that gain, leaving a taxable gain of only $9,000. Volume 75% 1:54 Capital Losses and Tax The Long and Short of It Capital losses do mirror capital gains in their holding periods. An asset or investment that is held for a year to the day or less, and sold at a loss, will generate a short-term capital loss. A sale of any asset held for more than a year to the day, and sold at a loss, will generate a long-term loss. When capital gains and losses are reported on the tax return, the taxpayer must first categorize all gains and losses between long and short term, and then aggregate the total amounts for each of the four categories. Then the long-term gains and losses are netted against each other, and the same is done for short-term gains and losses. Then the net long-term gain or loss is netted against the net short-term gain or loss.2 This final net number is then reported on Form 1040. For example, Frank has the following gains and losses from his stock trading for the year: Short-term gains: $6,000 Long-term gains: $4,000 Short-term losses: $2,000 Long-term losses: $5,000 Net short-term gain/loss: $4,000 ST gain ($6,000 ST gain - $2,000 ST loss) Net long-term gain/loss: $1,000 LT loss ($4,000 LT gain - $5,000 LT loss) Final net gain/loss: $3,000 short-term gain ($4,000 ST gain - $1,000 LT loss) Again, Frank can only deduct $3,000 of the final net short- or long-term losses against other types of income for that year and must carry forward any remaining balance. Tax Reporting A new tax form was recently introduced. This form provides more detailed information to the Internal Revenue Service (IRS) so that it can compare gain and loss information with that reported by brokerage firms and investment companies. Form 8949 is now used to report net gains and losses, and the final net number from that form is then transposed to the newly revised Schedule Dand then to the 1040.3 Capital Loss Strategies Although novice investors often panic when their holdings decline substantially in value, experienced investors who understand the tax rules are quick to liquidate their losers, at least for a short time, to generate capital losses. Smart investors also know that capital losses can save them more money in some situations than others. Capital losses that are used to offset long-term capital gains will not save taxpayers as much money as losses that offset short-term gains or other ordinary income. Wash Sale Rules Investors who liquidate their losing positions must wait at least 31 days after the sale date before buying the same security back if they want to deduct the loss on their tax returns. If they buy back in before that time, the loss will be disallowed under the IRS wash sale rule.4 This rule may make it impractical for holders of volatile securities to attempt this strategy, because the price of the security may rise again substantially before the time period has been satisfied. But there are ways to circumvent the wash sale rule in some cases. Savvy investors will often replace losing securities with either very similar or more promising alternatives that still meet their investment objectives. For example, an investor who holds a biotech stock that has tanked could liquidate this holding and purchase an ETF that invests in this sector as a replacement. The fund provides diversification in the biotech sector with the same degree of liquidity as the stock. Furthermore, the investor can purchase the fund immediately, because it is a different security than the stock and has a different ticker symbol. This strategy is thus exempt from the wash sale rule, as it only applies to sales and purchases of identical securities.

Commercial Paper

Large, financially secure corporations finance their short term obligations by selling "commercial paper," a short-term promissory note. It is a zero coupon debt instrument since it is sold at a discount and then matures to face value, providing the buyer with a return. Commercial paper is sold in units of $100,000 or more, so it's primarily purchased by institutional investors such as mutual funds rather than individual investors.

when are the ends of the stock market quarters. how long is each quarter

March 31, June 30, September 30, or December 31.each quarter lasts 3 months.

what are marketable securities

Marketable securities are liquid financial instruments that can be quickly converted into cash at a reasonable price. The liquidity of marketable securities comes from the fact that the maturities tend to be less than one year, and that the rates at which they can be bought or sold have little effect on prices.

how are bonds bought and sold

Most bonds are still traded over the counter (OTC) through electronic markets. For individual investors, many brokers charge larger commissions for bonds, since the market isn't as liquid and still requires calling bond desks in many buyand sell scenarios. Other times, a broker-dealer may have certain bonds in their inventory and may sell to their investors directly from their inventory. You can often purchase bonds through your broker's website or call with the bond's unique ID number, called the CUSIP number, to get a quote and place a "buy" or "sell" order.

municipal bonds

Municipal bonds are issued by states or municipalities to fund projects or borrow money to meet general obligations. Municipal bond interest is exempt from federal income taxes. Most municipal bond interest is exempt from state and local taxes for taxpayers of the state in which they are issued. Capital gain from the sale of municipal bonds is taxable income on both the federal and state levels. Interest rates are lower than corporate bonds. Municipal bonds may be revenue bonds, where revenue from a specific project, such as an airport terminal, is dedicated to making interest payments on the bond.

what is net income

Net income (NI), also called net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization. This number appears on a company's income statement and is also an indicator of a company's profitability.

what is net present value

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

what is net sales

Net sales is the sum of a company's gross sales minus its returns, allowances, and discounts.

what is a no par value and a low par value stock

No-par value stock is issued without the specification of a par value indicated in a company's articles of incorporation or on its stock certificates. Most shares issued are classified as no-par or low-par value stock, where prices of the latter are determined by the amount of cash investors are willing to pony up for the stocks on the open market. KEY TAKEAWAYS No-par value stock is issued without a par value. The value of no-par value stocks is determined by the price investors are willing to pay on the open market. The advantage of no-par value stock is that companies can then issue stock at higher prices in future offerings. While no-par value stock is issued with no face value, low-par value stock is issued with a price as low as $0.01. On the downside of low-par value stock, if the issuing company defaults or shutters its doors, analysts may assume it was never fully capitalized to begin with. Understanding No-Par Value Stock Companies may find it beneficial to issue no-par value stock because doing so gives them the flexibility to set higher prices for future public offerings. This reduces the downside risk for shareholders if the stock price sharply plummets. Because of the known fluctuations in pricing associated with the stock market, many investors typically do not deem par necessary prior to purchasing a particular investment. In addition, the production of stocks with a face value may result in legal liabilities regarding the difference between the current going rate and the par value assigned to the stocks, making them a less attractive option for issuers. When companies issue no-par value stock, the price may experience natural variations. A no-par stock's sale price can be determined by the basic principles of supply and demand, fluctuating as necessary to meet market conditions without being misrepresented by the face value.

non participating preferred stock

Non participating: the right to receive only a fixed dividend. No share in the additional profits of a company, so when earnings goes up your dividend remains constant unlike participatory preference shares which your dividend payment is also at a fixed rate but you can also get an increased dividend if the common shareholders dividend increases as well so you can profit from the company's success as well.

what are non-trade receivables

Non trade receivables are amounts due for payment to an entity other than its normal customer invoices for merchandise shipped or services performed. A non-trade receivable would be when someone owes the company money not related to providing a service or selling a product. For example, the company loans an employee money for a travel advance or a company borrows money from another company.

non cumulative preferred stock

Non-cumulative: dividends do not accumulate if a company decides not to pay dividends in one or more periods. However, whenever a dividend is paid, preferred shares get precedence over common shares. Because of this, a cumulative preferred share is worth more than a non-cumulative preferred share, all else equal.

what is non-current portion of term debt

Non-current portion of debt that a company owns. Think of this as a component of what a company has for debt that is not a short-term obligation.A company's total debt can be divided into two parts, the current portion of all its debt obligations and the long term portion of all its debt obligations. These items are often found on a company's balance sheet. In this case here, this line item is the non-current portion of its debt.

what is non operating income

Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations. It can include items such as dividend income, profits or losses from investments, as well as gains or losses incurred by foreign exchange and asset write-downs. Non-operating income is also referred to as incidental or peripheral income. Volume 75% 1:12 Non-Operating Income KEY TAKEAWAYS Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations. It can include dividend income, profits or losses from investments, as well as gains or losses incurred by foreign exchange and asset write-downs. Separating non-operating income from operating income gives investors a clearer picture of how efficient a company is at turning revenue into profit.

how do extrinsic and intrinsic value affect an options premium

One of the key drivers for an option's premium is the intrinsic value. Intrinsic value is how much of the premium is made up of the price difference between the current stock price and the strike price. For example, let's say an investor owns a call option on a stock that is currently trading at $49 per share. The strike price of the option is $45, and the option premium is $5. Because the stock price is currently $4 more than the option's strike price, then $4 of the $5 premium is comprised of intrinsic value. In the example, the investor pays the $5 premium upfront and owns a call option, with which it can be exercised to buy the stock at the $45 strike price. The option isn't going to be exercised until it's profitable or in-the-money. We can figure out how much we need the stock to move in order to profit by adding the price of the premium to the strike price: $5 + $45 = $50. The break-even point is $50, which means the stock must move above $50 before the investor can profit (excluding broker commissions). In other words, to calculate how much of an option's premium is due to intrinsic value, an investor would subtract the strike price from the current stock price. Intrinsic value is important because if the option premium is primarily made up intrinsic value, the option's value and profitability are more dependent on movements in the underlying stock price. The rate at which a stock price fluctuates is called volatility. An option's sensitivity to the underlying stock's movement is called delta. A delta of 1.0 tells investors that the option will likely move dollar for dollar with the stock, whereas a delta of 0.6 means the option will move approximately 60 cents for every dollar the stock moves. The delta for puts is represented as a negative number, which demonstrates the inverse relationship of the put compared to the stock movement. A put with a delta of -0.4 should increase by 40 cents in value if the stock drops $1 per share. The time remaining until an option's expiration has a monetary value associated with it, which is known as time value. The more time that remains before the option's expiry, the more time value is embedded in the option's premium. In other words, time value is the portion of the premium above the intrinsic value that an option buyer pays for the privilege of owning the contract for a certain period. As a result, time value is often referred to as extrinsic value. Investors are willing to pay a premium for an option if it has time remaining until expiration because there's more time to earn a profit. The longer the time remaining, the higher the premium since investors are willing to pay for that extra time for the contract to become profitable or have intrinsic value. Remember, the underlying stock price needs to move beyond the option's strike price in order to have intrinsic value. The more time that remains on the contract, the higher the probability the stock's price could move beyond the strike price and into profitability. As a result, time value plays a significant role, in not only determining an option's premium but also the likelihood of the contract expiring in-the-money. Options with more extrinsic value are less sensitive to the stock's price movement while options with a lot of intrinsic value are more in sync with the stock price.

on an options table what does open interest mean

Open interest reflects the number of contracts that are held by traders and investors in active positions, ready to be traded. Open interest decreases as open trades are closed. These positions have been opened, but have not been closed out, expired, or exercised. Open interest decreases when buyers (or holders) and sellers (or writers) of contracts close out more positions than were opened that day.

what is open interest in futures and options

Open interest, the total number of open contracts on a security, applies primarily to the futures market. Open interest is a concept all futures traders should understand because it is often used to confirm trends and trend reversals for futures and options contracts.

what are options

Options are contracts that give the right but not the obligation to buy or sell an asset. Investors typically use option contracts when they don't want to take a position in the underlying asset but still want to increase exposure in case of large price movement.

how are options characterized by their duration

Options can also be categorized by their duration. Short-term options are those that expire generally within a year. Long-term options with expirations greater than a year are classified as long-term equity anticipation securities or LEAPs. LEAPS are identical to regular options, they just have longer durations.

explain the concept of time decay

Over time, the time value decreases as the option expiration date approaches. The less time that remains on an option, the less incentive an investor has to pay the premium since there's less time to earn a profit. As the option's expiration date draws near, the probability of earning a profit becomes less likely, resulting in an increasing decline in time value. This process of declining time value is called time decay. Typically, an options contract loses approximately one-third of its time value during the first half of its life. Time value decreases at an accelerating pace and eventually reaches zero as the option's expiration date draws near. Time value and time decay both play important roles for investors in determining the likelihood of profitability on an option. If the strike price is far away from the current stock price, there needs to be enough time remaining on the option to earn a profit. Understanding time decay and the pace at which time value erodes is key in determining whether an option has any chance of having intrinsic value.

what is the quiet period and when is it for IPOs and for normal public companies on the secondary market

Prior to a company's Initial Public Offering (IPO), the quiet period is an SEC-mandated embargo on promotional publicity. This prohibits management teams or their marketing agents from making forecasts or expressing any opinions about the value of their company. For publicly-traded stocks, the four weeks before the close of a business quarter is also known as a quiet period. Here again, corporate insiders are forbidden to speak to the public about their business to avoid tipping certain analysts, journalists, investors, and portfolio managers to an unfair advantage - often to avoid the appearance of insider information, whether real or perceived. KEY TAKEAWAYS A quiet period is a set amount of time in which a company's management and marketing teams cannot share opinions or additional information about the firm. The purpose of the quiet period is to preserve objectivity and avoid the appearance of a company providing insider information to select investors. With an IPO, the quiet period stretches from the time a company files registration paperwork with U.S. regulators through the 40 days after the stock starts trading. With publicly-traded companies, the quiet period is a reference to the four weeks before the end of the business quarter

what is private equity

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet. A private equity fund has Limited Partners (LP), who typically own 99 percent of shares in a fund and have limited liability, and General Partners (GP), who own 1 percent of shares and have full liability. The latter are also responsible for executing and operating the investment. KEY TAKEAWAYS Private equity is an alternative form of private financing, away from public markets, in which funds and investors directly invest in companies or engage in buyouts of such companies. Private equity firms make money by charging management and performance fees from investors in a fund. Among the advantages of private equity are easy access to alternate forms of capital for entrepreneurs and company founders and less stress of quarterly performance. Those advantages are offset by the fact that private equity valuations are not set by market forces. Private equity can take on various forms, from complex leveraged buyouts to venture capital.

what are quick assets

Quick assets refer to assets owned by a company with a commercial or exchange value that can easily be converted into cash or that are already in a cash form. Quick assets are therefore considered to be the most highly liquid assets held by a company. They include cash and equivalents, marketable securities, and accounts receivable.

what are receivables

Receivables, also referred to as accounts receivable, are debts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for. KEY TAKEAWAYS Companies that allow customers to purchase goods or services on credit will have receivables on their balance sheet. Receivables are recorded at the time of a sale when a good or service has been delivered but not yet been paid for. Receivables will decrease when payment from customers is received. The amount of receivables estimated to be uncollectible is recorded in an allowance for doubtful accounts.

what is restricted cash

Restricted cash refers to money that is held for a specific purpose and thus not available to the company for immediate or general business use. Restricted cashappears as a separate item from the cash and cash equivalents listing on a company's balance sheet.

how would a speculator trade a futures contract and for what purpose

Retail traders and portfolio managers are not interested in delivering or receiving the underlying asset. A retail trader has little need to receive 1,000 barrels of oil, but they may interested in capturing a profit on the price moves of oil. Futures contracts can be traded purely for profit, as long as the trade is closed before expiration. Many futures contracts expire on the third Friday of the month, but contracts do vary so check the contract specifications of any and all contracts before trading them. For example, it is January and April contracts are trading at $55. If a trader believes that the price of oil will rise before the contract expires in April, they could buy the contract at $55. This gives them control of 1,000 barrels of oil. They are not required to pay $55,000 ($55 x 1,000 barrels) for this privilege, though. Rather, the broker only requires an initial margin payment, typically of a few thousand dollars for each contract. The profit or loss of the position fluctuates in the account as the price of the futures contract moves. If the loss gets too big, the broker will ask the trader to deposit more money to cover the loss. This is called maintenance margin. The final profit or loss of the trade is realized when the trade is closed. In this case, if the buyer sells the contract at $60, they make $5,000 [($60-$55) x 1000). Alternatively, if the price drops to $50 and they close out the position there, they lose $5,000.

what are retained earnings

Retained earnings (RE) is the amount of net income left over for the business after it has paid out dividends to its shareholders. A business generates earningsthat can be positive (profits) or negative (losses). Positive profits give a lot of room to the business owner(s) or the company management to utilize the surplus money earned. Often this profit is paid out to shareholders, but it can also be re-invested back into the company for growth purposes. The money not paid to shareholders counts as retained earnings.

what are the 3 different credit rating providers

S&P (standard and poor), Fitch, and Moody

what is the difference between secured and unsecured debt

Secured debt is debt backed or secured by collateral to reduce the risk associated with lending. If the borrower on a loan defaults on repayment, the bank seizes the collateral, sells it, and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered as a form of security, which is why unsecured debt is considered a riskier investment than secured debt. KEY TAKEAWAYS Secured debt is debt that is backed by collateral to reduce the risk associated with lending. In the event a borrower defaults on their loan repayment, a bank can seize the collateral, sell it, and use the proceeds to pay back the debt. Because loans that are secured have collateral backing them, they are considered less risky than loans that are unsecured, or that have no collateral backing. The interest rate on secured debt is lower than on unsecured debt. In the event of a company's bankruptcy, secured lenders are always paid back before unsecured lenders.

what is short and distort in a bear market

Short and distort refers to an unethical and illegal practice that involves investors shorting a stock and then spreading rumors in an attempt to drive down its price. Such a practice, most often employed by stock manipulators who trade daily via the internet, involves the spread of unsubstantiated rumors and other kinds of unverified negative news designed to help them realized a profit on their short position. Short and distort can be contrasted with a pump and dump scheme, whereby the perpetrator takes a long position and then spreads misinformation to drive the stock price up. The act of shorting and distorting constitutes securities fraud and can result in significant fines and penalties. How Short and Distort Works Short and distort efforts are often practiced as a part of naked short selling, which involves the short-selling of a security without having first borrowed it or making sure it can be borrowed. In such cases the investor uses the proceeds from the short sale to deliver the shorted shares. The profit is realized in two ways: in the spread between the price at which the shares were borrowed and the lower price at which they were delivered, and also in the practice of buying more shares than were borrowed at the lower price, which are then put up for sale, further lowering the price of a company's stock.

what is smart money

Smart money is the capital that is being controlled by institutional investors, market mavens, central banks, funds, and other financial professionals.

packaged debt securities

Some debt securities are pools of individual debts. Examples are collateralized mortgage obligations (MBS) and collateralized debt obligations. These pools of debt securities are packaged together and sold to investors as a single debt security. As long as those individuals don't default you get your interest payments and your full principal back at maturity

what are some other factors that impact the profitability of an options contract

Some of those factors include the stock option price or premium, how much time is remaining until the contract expires, and how much the underlying security or stock fluctuates in value.

what are structured products

Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. These products may take traditional securities such as an investment-grade bond and replace the usual payment features with non-traditional payoffs

what are tangible fixed assets

Tangible fixed assets generally refer to assets that have a physical value. Examples of this are your business premises, equipment, inventory and machinery. Tangible fixed assets have a market value that needs to be accounted for when you file your annual accounts.

what is tax repatriation

Tax repatriation refers to the tax imposed by the U.S. on the return of money that multinational corporations make overseas. Before the Tax Cuts and Jobs Act, the IRS required corporations to pay taxes on all domestic and foreign income.

what does taxing power mean

Taxing power refers to the ability of a government to impose and collect taxes.

what is term debt

Term debt is a loan with a set payment schedule over several months or years. For example, say you borrow $50,000 and pay the money back with monthly payments over five years. These types of loans typically have a fixed interest rate with set payments, which makes them very predictable

what is terminal value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. Terminal value assumes a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Treasury Bills, Notes and Bonds

The U.S. Treasury issues Treasury bills, Treasury notes, and Treasury bonds. Treasury bills have durations of less than one year; Treasury notes have durations between one and ten years; Treasury bonds have durations over ten years. Treasury debt is considered amongst the safest debt in the world, because it's backed by the U.S. governments's full debt-paying capacity. Correspondingly, interest rates for these federal instruments tend to be lower than interest rates of other debt securities.

what is the bond spread

The bond spread or yield spread, refers to the difference in the yield on two different bonds or two classes of bonds. Investors use the spread as in indication of the relative pricing or valuation of a bond.

what are the roles of the buyer and seller in a futures contract

The buyer of a futures contract is taking on the obligation to buy and receive the underlying asset when the futures contract expires. The seller of the futures contract is taking on the obligation to provide and deliver the underlying asset at the expiration date.

what is a call date

The call date is the date on which a bond can be redeemed before maturity. If the issuer feels there is a benefit to refinancing the issue, the bond may be redeemed on the call date at par or at a small premium to par.

what does the capital structure of a corporation mean

The capital structure is the particular combination of debt and equity used by a company to finance its overall operations and growth. Debt comes in the form of bond issues or loans, while equity may come in the form of common stock, preferred stock, or retained earnings.

how are futures prices and spot prices interconnected

The difference between spot prices and futures contract prices can be significant. Futures prices can be in contango or backwardation. Contango is when futures prices fall to meet the lower spot price. Backwardation is when futures prices rise to meet the higher spot price. Backwardation tends to favor net long positions since futures prices will rise to meet the spot price as the contract get closer to expiry. Contango favors short positions, as the futures lose value as the contract approaches expiry and converges with the lower spot price. Futures markets can move from contango to backwardation, or vice versa, and may stay in either state for brief or extended periods of time. Looking at both spot prices and futures prices is beneficial to futures traders. Spot price is the price traders pay for instant delivery of an asset, such as a security or currency.

what is the dividend yield expressed as a percentage and how do you calculate it

The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. The reciprocal of the dividend yield is the price/dividend ratio. KEY TAKEAWAYS The dividend yield-displayed as a percentage-is the amount of money a company pays shareholders for owning a share of its stock divided by its current stock price. Mature companies are the most likely to pay dividends. Companies in the utility and consumer staple industries often having higher dividend yields. Real estate investment trusts (REITs), master limited partnerships (MLPs), and business development companies (BDCs) pay higher than average dividends; however, the dividends from these companies are taxed at a higher rate. It's important for investors to keep in mind that higher dividend yields do not always indicate attractive investment opportunities because the dividend yield of a stock may be elevated as the result of a declining stock price.

what is effective annual interest rate

The effective annual interest rate is the real return on a savings account or any interest-paying investment when the effects of compounding over time are taken into account. It also reveals the real percentage rate owed in interest on a loan, a credit card, or any other debt. A bank certificate of deposit, a savings account, or a loan offer may be advertised with its nominal interest rate as well as its effective annual interest rate. The nominal interest rate does not take reflect the effects of compounding interest or even the fees that come with these financial products. The effective annual interest rate is the real return. KEY TAKEAWAYS A savings account or a loan may be advertised with both a nominal interest rate and an effective annual interest rate. The effective annual interest rate is the real return paid on savings or the real cost of a loan as it takes into account the effects of compounding and any fees charged. The more frequent the compounding periods, the greater the return.

what is the effective tax rate

The effective tax rate is the average tax rate paid by an individual or a corporation. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. The effective tax rate for a corporation is the average rate at which its pre-tax profits are taxed, while the statutory tax rate is the legal percentage established by law.

what is the fixed charge coverage ratio and how is it useful for bonds

The fixed-charge coverage ratio (FCCR) measures a firm's ability to cover its fixed charges, such as debt payments, interest expense, and equipment lease expense. It shows how well a company's earnings can cover its fixed expenses. Banks will often look at this ratio when evaluating whether to lend money to a business. KEY TAKEAWAYS The fixed-charge coverage ratio (FCCR) shows how well a company's earnings can be used to cover its fixed charges such as rent, utilities, and debt payments. Lenders often use the fixed-charge coverage ratio to assess a company's overall creditworthiness. A high FCCR ratio result indicates that a company can adequately cover fixed charges based on its current earnings alone

what happens to the value of an option as time expires and your expiration date moves closer

The less time there is until expiry, the less value an option will have. This is because the chances of a price move in the underlying stock diminish as we draw closer to expiry. This is why an option is a wasting asset. If you buy a one-month option that is out of the money, and the stock doesn't move, the option becomes less valuable with each passing day. Since time is a component to the price of an option, a one-month option is going to be less valuable than a three-month option. This is because with more time available, the probability of a price move in your favor increases, and vice versa. This wasting feature of options is a result of time decay. The same option will be worth less tomorrow than it is today if the price of the stock doesn't move.

what is a joint stock company

The modern corporation has its origins in the joint-stock company. A joint-stock company is a business owned by its investors, with each investor owning a share based on the amount of stock purchased. Joint-stock companies are created in order to finance endeavors that are too expensive for an individual or even a government to fund. The owners of a joint-stock company expect to share in its profits.

what is nominal rate of return

The nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation. If an investment generated a 10% return, the nominal rate would equal 10%. After factoring in inflation during the investment period, the actual ("real") return would likely be lower. However, the nominal rate of return has its merits since it allows investors to compare the performance of an investment irrespective of the different tax ratesthat might be applied for each investment.

weighted average of outstanding shares

The number of shares outstanding in a company will often change due to a company issuing new shares, repurchasing shares, and retiring existing shares. The number of outstanding shares can also change if other financial instruments are turned into shares. An example of this is when employees of the company convert their employee stock options (ESO) into shares. The weighted average of outstanding shares is a calculation that incorporates any changes in the number of a company's outstanding shares over a reporting period. The reporting period usually coincides with a company's quarterly or annual reports. The weighted average is a significant number because companies use it to calculate key financial measures, such as earnings per share (EPS), for the time period. KEY TAKEAWAYS The weighted average of outstanding shares is a calculation that a company uses to reflect any changes in the number of the company's outstanding shares over a reporting period. Events that can cause the number of a company's outstanding shares to fluctuate include share buybacks, employees exercising stock options, the issuance of new shares, and the retirement of existing shares. To calculate the weighted average of outstanding shares, take the number of outstanding shares and multiply the portion of the reporting period those shares covered; do this for each portion and then add the totals together.

what is a P/E ratio

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. A high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting high growth rates in the future.

what is the difference between bills, bonds, and notes

The primary difference between them is the time each one takes to mature. Additionally, one has a different interest-payment structure. First, Treasury bills mature in a year or less. Because of their short duration, these securities don't make regular interest payments — after all, bonds generally pay every six months, so what would a 90-day Treasury bill do? Instead, Treasury bills are sold at a discount to their face value, and investors get the full amount upon maturity. Treasury notes have maturities from two to 10 years, while Treasury bonds have maturities of greater than 10 years. These both pay interest semi-annually, and the only real difference between Treasury notes and bonds is their maturity length. Generally speaking, the longer the maturity of a Treasury security, the higher the annual yield it will pay, all other factors being equal. For example, a 30-year Treasury bond can be expected to have a higher annual yield than a 10-year Treasury note issued at the same time, which would in turn yield more than a 26-week Treasury bill.

how does volatility impact an options premium

The rate at which a stock's price fluctuates, called volatility, also plays a role in the probability of an option expiring in the money. Implied volatility, also known as vega, can inflate the option premium if traders expect volatility. Implied volatility is a measure of the market's view of the probability of stock's price changing in value. High volatility increases the chance of a stock moving past the strike price, so options traders will demand a higher price for the options they are selling. This is why well-known events like earnings are often less profitable for option buyers than originally anticipated. While a big move in the stock may occur, option prices are usually quite high before such events, which offsets the potential gains. Conversely, when a stock price is very calm, option prices tend to fall, making them relatively cheap to buy. However, unless volatility expands again, the option will stay cheap, leaving little room for profit.

what is the difference between primary and secondary markets

The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the "stock market," though stocks are also sold on the primary market when they are first issued. The national exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, are secondary markets.

what is the spot price in futures/forwards trading

The spot price is the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can be bought or sold for immediate delivery. A futures contract price is commonly determined using the spot price of a commodity, expected changes in supply and demand, the risk-free rate of return for the holder of the commodity, and the costs of transportation or storage in relation to the maturity date of the contract. Futures contracts with longer times to maturity normally entail greater storage costs than contracts with nearby expiration dates. Spot prices are in constant flux. While the spot price of a security, commodity, or currency is important in terms of immediate buy-and-sell transactions, it perhaps has more importance in regard to the large derivatives markets. Options, futures contracts, and other derivatives allow buyers and sellers of securities or commodities to lock in a specific price for a future time when they want to deliver or take possession of the underlying asset. Through derivatives, buyers and sellers can partially mitigate the risk posed by constantly fluctuating spot prices. Futures contracts also provide an important means for producers of agricultural commodities to hedge the value of their crops against price fluctuations.

what is the statutory tax rate

The statutory tax rate is the rate imposed by law on taxable income that falls within a given tax bracket. The effective tax rate is the percentage of income actually paid by an individual or a company after taking into account tax breaks (including loopholes, deductions, exemptions, credits and preferential rates)

what are blanket mortgages

The term blanket mortgage refers to a single mortgage that covers two or more pieces of real estate. The real estate is held together as collateral on the mortgage, but the individual pieces of the real estate may be sold without retiring the entire mortgage. Blanket mortgages make it easier to get financing for multiple properties rather than having to take out numerous mortgages. KEY TAKEAWAYS A blanket mortgage is a single mortgage that covers two or more pieces of real estate. The real estate is held together as collateral, but the individual properties may be sold without retiring the entire mortgage. Blanket mortgages are commonly used by developers, real estate investors, and flippers.

what is the principle of time value of money

The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value. For example, assuming a 5% annual interest rate, $1.00 in a savings account will be worth $1.05 in a year. Similarly, if a $1 payment is delayed for a year, its present value is $.95 because it cannot be put in your savings account to earn interest.

what is the weighted average number of outstanding shares and weighted average cost per share

The weighted average shares outstanding, or the weighted average of outstanding shares, is a calculation that takes into consideration any changes in the number of outstanding shares over a specific reporting period. Investors, when investing for the long term, often compile a position in a stock over several years. Stock prices change daily and keeping track of the cost basis of shares accumulated over many years is desirable. If an investor wants to calculate a weighted average of the share price he or she paid for the shares, they must multiply the number of shares acquired at each price by that price, add those values, and then divide the total value by the total number of shares. In general, the weighted average is a mean value calculated by averaging each quantity against an assigned weighting to determine the relative importance of each quantity. The weighted average number of shares is determined by taking the number of outstanding shares and multiplying it by the percentage of the reporting period for which that number applies for each period. In other words, the formula takes the number of shares outstanding during each month weighted by the number of months that those shares were outstanding.

what is key when looking at a stock to determine strike price and expiration date when you are an underwriter

There is a trade-off between strike prices and options expirations, as the earlier example demonstrated. An analysis of support and resistance levels, as well as key upcoming events (such as an earnings release), is useful in determining which strike price and expiration to use.

how are these debt instruments sliced up and sold to investors

These debts are sliced up and sold to investors in smaller units - for instance, a $1 million debt issue may be allocated to one-thousand $1,000 bonds

what are share buy back programs

Through stock buyback programs (also known as share repurchase programs), companies buy back shares of their own stock at market price to retain ownership. Doing so reduces the number of sharesoutstanding and increases the ownership stake of remaining stockholders.

how should one measure time value and use it to create an exist strategy

Time value is measured by the Greek letter theta. Option buyers need to have particularly efficient market timing because theta eats away at the premium. A common mistake option investors make is allowing a profitable trade to sit long enough that theta reduces the profits substantially. For example, a trader may buy an option for $1, and see it increase to $5. Of the $5 premium, only $4 is intrinsic value. If the stock price doesn't move any further, the premium of the option will slowly degrade to $4 at expiry. A clear exit strategy should be set before buying an option.

what is the difference between standardized contracts and otc contracts in futures and option trading

To encourage as much participation and liquidity as possible, contracts trading on an exchange have standardized sizes, expiration dates, and, for options, strike prices. This standardization contrasts to over-the-counter (OTC) contracts where buyers and sellers agree to bespoke terms. Another very important aspect of the exchange is that it provides clearing services. While various firms provide the clearing, the exchange standardizes the charges and the performance of that service. Clearing services insure that participants don't have to worry about the risk of their trade counterparty failing to deliver on their contractual obligations. That makes trading a very simple proposition for short-term speculators and keeps them interested in participating in the futures market.

what is regulation NMS

Today, the SEC requires brokers to disclose their policies surrounding this practice, and publish reports that disclose their financial relationships with market makers, as mandated in 2005's Regulation NMS

what are TIPS

Treasury Inflation-Protected Security (TIPS) is a Treasury bond that is indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money. The principal value of TIPS rises as inflation rises while the interest payment varies with the adjusted principal value of the bond. The principal amount is protected since investors will never receive less than the originally invested principal.

what is treasury stock

Treasury stock (also known as treasury shares) are the portion of shares that a company keeps in its own treasury. They may have either come from a part of the float and shares outstanding before being repurchased by the company or may have never been issued to the public at all.

is it good for an option to be selling at a cheaper price

Trying to balance the point above, when buying options, purchasing the cheapest possible ones may improve your chances of a profitable trade. Implied volatility of such cheap options is likely to be quite low, and while this suggests that the odds of a successful trade are minimal, it is possible that implied volatility and hence the option are under-priced. So, if the trade does work out, the potential profit can be huge. Buying options with a lower level of implied volatility may be preferable to buying those with a very high level of implied volatility, because of the risk of a higher loss (higher premium paid) if the trade does not work out.

what is underlying debt

Underlying debt is a municipal bond term that relates to an implicit understanding that the debt of smaller government entities might have backing from the creditworthiness of larger government entities in the jurisdiction. On their own, these smaller entities might have a hard time raising funds if they don't have a robust financial position. However, the implicit backing of larger entities facilitates borrowing by smaller entities and allows them to obtain lower interest rates on their obligations. People consider the municipal bonds to be the underlying debt of the backing entity.

how is understanding the sector important to options trading

Understand the sector to which the stock belongs. For example, biotech stocks often trade with binary outcomes when clinical trial results of a major drug are announced. Deeply out of the money calls or puts can be purchased to trade on these outcomes, depending on whether one is bullish or bearish on the stock. Obviously, it would be extremely risky to write calls or puts on biotech stocks around such events, unless the level of implied volatility is so high that the premium income earned compensates for this risk. By the same token, it makes little sense to buy deeply out of the money calls or puts on low-volatility sectors like utilities and telecoms.

what are underwriter fees

Underwriters or underwriter syndicates earn underwriting fees for doing three things: negotiating and managing the offering, assuming the risk of buying the securities (if nobody else will), and managing the sale of the shares.

what is unsecured debt

Unsecured debt refers to loans that are not backed by collateral. If the borrower defaults on the loan, the lender may not be able to recover their investment because the borrower is not required to pledge any specific assets as security for the loan.

what is unsubordinated debt

Unsubordinated debt is an obligation that must be repaid before any other form of debt if the debtor goes bankrupt or insolvent. The majority of unsubordinated debt is usually secured by collateral. This kind of debt is also known as a senior security or senior debt.

where does the price of an asset go if its volatility increases

Volatility also increases the price of an option. This is because uncertainty pushes the odds of an outcome higher. If the volatility of the underlying asset increases, larger price swings increase the possibilities of substantial moves both up and down. Greater price swings will increase the chances of an event occurring. Therefore, the greater the volatility, the greater the price of the option. Options trading and volatility are intrinsically linked to each other in this way.

what are capital expenditures

What Are Capital Expenditures (CapEx)? Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

what is a subsidiary

What Is a Subsidiary? In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or the holding company. The parent holds a controlling interest in the subsidiarycompany, meaning it has or controls more than half of its stock.

what is a timeshare

What Is a Timeshare? A timeshare is a vacation property arrangement that lets you share the property cost with others in order to guarantee time at the property. But what they don't mention are the growing maintenance fees and other incidental costs each year that can make owning one unbearable. Shared Deeded Contracts Shared deeded contracts divide the ownership of the property between everyone involved in the timeshare. You know, like a deed that you share. Each "owner" is usually tied to a specific week or set of weeks they can use it. So, since there are 52 weeks in a year, the timeshare company could technically sell that one unit to 52 different owners. This type of ownership usually doesn't expire and can be sold (good luck!), willed or given to others. Ready to get rid of your timeshare? Here's how. Even though shared deeded means you get an actual deed to an actual piece of property, you can't treat it like normal real estate. It's like if grandma's house was willed to her 52 grandchildren and they all have to agree before they can change out that pink tile in the bathroom! With a fixed week option, you'll select a specific week of the year to vacation on the property. If your neighbors have ever announced, "We go to the lake house every year the week after Memorial Day!" they might be on a fixed-week timeshare. Of course, if you want to try a different week of the year, you're up a creek. Changing your allocated week could take an act of Congress (or at least a hefty upgrade fee). The floating week option allows you to choose your week within certain limits. The offer would be something like, "You can book any week between January 2 through May 4 . . . except for the two weeks before and after Easter." Each reservation also has to be made during a specific window of time. You might be encouraged to call right after the new year to reserve your summer vacation week at the resort. "Remember: first come, first served!" If you miss the window and get stuck with some random week in the dead of winter, that's just tough!

what is the prudent person rule

What Is the Prudent-Person Rule? The prudent-person rule is a legal principle that is used to restrict the choices of the financial manager of an account to the types of investments that a person seeking reasonable income and preservation of capital might buy for his or her own portfolio. The prudent-person rule might be applied to the manager of a pension fund or employee investment account, or to the guardian or trustee of an estate. It is intended as a general guideline for someone managing assets of value for another person or people. Understanding the Prudent-Person Rule The prudent-person rule is intended to protect investors using the services of an investment advisor from shady, risky, or otherwise questionable investments, such as penny stocks. KEY TAKEAWAYS The prudent-person rule is a guideline for making financial decisions using the principles of common sense and reasonable risk. The rule is commonly cited for trustees and guardians tasked with administering assets on behalf of others. Federal rules for pension fund managers contain similar cautions against reckless investing. The law does not require a person with a fiduciary responsibility to have extraordinary expertise. However, the prudent-person rule sets a reasonable expectation that the person will make rational, intelligent decisions when making investment choices on behalf of the client.

what is yield to call and why is it useful when calculating your return on a loan when you are buying a bond/preffered shares above face value

Yield to call (YTC) is a financial term that refers to the return a bondholder receives if the bond is held until the call date, which occurs sometime before it reaches maturity. This number can be mathematically calculated as the compound interest rate at which the present value of a bond's future coupon payments and call price is equal to the current market price of the bond. Yield to call applies to callable bonds, which are debt instruments that let bond investors redeem the bonds—or the bond issuer to repurchase them—on what is known as the call date, at a price known as the call price. By definition, the call date of a bond chronologically occurs before the maturity date. Generally speaking, bonds are callable over several years. They are normally called at a slight premium above their face value, though the exact call price is based on prevailing market rates.

long put option

You believe a security's price will decrease and buy the right (long) to sell (put) the security. As the long put holder, the payoff is positive if the security's price is below the exercise price by more than the premium paid for the put.

short call

You believe a security's price will decrease and sell (write) a call. If you sell a call, the counterparty (the holder of a long call) has control over whether or not the option will be exercised because you give up control as the short. As the writer of the call, the payoff is equal to the premium received by the buyer of the call if the security's price declines. But you lose money if the security rises more than the exercise price plus the premium. You do not have the option since you are an underwriter so you are exposed to unlimited risk unless you are hedging the contract.

long call option

You believe a security's price will increase and buy the right (long) to own (call) the security. As the long call holder, the payoff is positive if the security's price exceeds the exercise price by more than the premium paid for the call.

short put

You believe the security's price will increase and sell (write) a put. As the writer of the put, the payoff is equal to the premium received by the buyer of the put if the security's price rises, but if the security's price falls below the exercise price minus the premium, you lose money.

what is a zero coupon bond

a bond with no coupon interest payments however the bond holder purchases the bond at a steep discount and then at maturity she gets paid the face value of the bond which she hopes with market conditions will be higher than the discount she bought it for.

what is a sinking fund

a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.

what is the black scholes model for option trading

a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments. It assumes these instruments (such as stocks or futures) will have a lognormal distribution of prices. Using this assumption and factoring in other important variables, the equation derives the price of a call option. The standard BSM model is only used to price European options and does not take into account that U.S. options could be exercised before the expiration date.

why does the fed inflate the national currency

a moderate amount of inflation protects the country from deep depressions/recessions. It also serves as an indirect form of taxation.

what is a naked call/put compared to a covered call/put

a naked call is where you are selling stock that you don't own and a covered call is selling stock that you already own.

depreciation

a reduction in the value of an asset with the passage of time, due in particular to wear and tear.

what is current portion of term debt

a short term debt obligation that a company owes

what does the movement of a company's roe tell an investor about the company

a steady or increasing roe is a company that knows how to reinvest there earnings. this is important because most companies retain their earnings in the business. a declining roe is symbolic of management that doesn't know how to reinvest their capital in successful assets. companies like these should pay most of their earnings as dividends. ROE is considered a measure of how effectively management is using a company's assets to create profits. KEY TAKEAWAYS Return on equity (ROE) measures how effectively management is using a company's assets to create profits.

what is the multiplication number for options contracts

a stock option contract is the option to buy or sell 100 shares; that's why you must multiply the contract premium by 100 to get the total amount you'll have to spend to buy the call.

what is an operational subsidiary

a subsidiary (daughter company) of a parent company however instead of having partial control the parent company has full ownership and control over the subsidiary.

even though there is typically not one specific cause to a bear market what is there. how do you use this thing to determine when a bull recovery will begin.

a theme for what is causing the bear market. when this theme of economic problems is resolved bear market willl end.

what is a bull trap

a trap for long investors/traders that makes them think the instrument will go up in price however it is a takeout and the price swiftly reverses resulting in a loss

what is another term for income bonds

adjustment bonds

what is invested capital for companies

amount of money raised through issues where debt and interest payments is added to the equity gained from the issues.

definition of debenture

an unsecured loan backed on general credit instead of assets

what time value are interest rates based on

annually so semi annual payments will be half of what your interest rate says you will get per year

at the money , in the money, out of the money differences in meaning

at the money= stock= strike price out of the money=stock price is out of the direction of call/put, in the money=stock is in the direction of the call/put

why do companies raise their dividends conservatively

because if they ever have to lower it in the future it will have a drastic affect on stock price so they are very conservative.

why is investing in a federal bond a risk free investment.

because they can print money to pay back whenever they want

what is difference between note, bill, and bond

bill shortest time frame usually less than a year, note less than 10 years, and bond less than 30.

from first to last what is the order of distribution when a company liquidates or goes bankrupt

bond holders, preferred stock, then common stock

how are stocks and bonds affected by inflation

bonds are heavily affected by inflation. stocks are not really affected by inflation as the net income of the company increases automatically when inflation increases so the stock price increases automatically as well since a stocks price is said to always be equal to the stocks market value (this isn't necessarily true but stocks tend to revolve around market value)

what did warren buffett search for in terms of p/bv and p/e ratios

both p/e and p/bv are very low. he would look for a p/e ratio of 15 or less and a p/bv ratio of 1.5 or lower. you can multiply p/e ratio and p/bv ratio of every company that you look at and if that product is below 22.5 it is worth looking at. high p/bv means terrible margin of safety and high p/e means it will take you a long time to get a return on your investment meaning that it has a higher likelihood of not giving you a return on your investment as more time equals more room for error in a company.

on an options table what does implied bid volatility mean

can be thought of as the future uncertainty of price direction and speed. This value is calculated by an option-pricing model such as the Black-Scholes model and represents the level of expected future volatility based on the current price of the option.

what are reserves

cash kept on hand for unexpected changes.

common stock

common shares represent an ownership interest in a company, including voting rights. they entitle investors to a share of the company's operating performance, participation in decision making in the form of voting rights and claim on the company's net assets in case of liquidation. Common shareholders enjoy voting rights. In statutory voting each share gets one vote. In cumulative voting, each shareholder gets to cast one vote per share times the number of positions to be filled and shareholders can direct their total voting rights to specific candidates. Common shares may be callable or potable.

when value investing during a market crash what should you look for

companies with very little debt

what is interest expense

company debt to loaners which is paid in interest

why is covered call writing more common than covered put writing

covered call writing is more common because more people buy stocks and hold them in their portfolio than people short stocks and hold them in their portfolio so more people are likely to hedge their bets through using covered calls than covered puts.

what two things should you use to access a company's debt? how do you calculate each one. what does buffett prefer for each one in terms of the numerical values.

debt/equity ratio and the current ratio. debt/equity (liabilities/assets). warren likes debt/equity of less than 0.5. current ratio tells you how the company would handle debt in the next 12 months. it compares the current assets to the current liabilities. warren buffett likes the current ratio greater than 1.5. ( current assets/ current liabilities)

what are u.s. treasury bonds free of unlike other bonds

default risk

difference between defensive and cyclical stocks

defensive stocks typically fare better during worse markets while cyclicals usually perform much worse in poor markets but move ahead of defensive stocks during bad markets

what are dividend equivalents

employees with restricted stock units do not automatically receive dividends. However, companies may choose to issue dividend equivalents to holders of RSUs. An example at Apple, whose stock plans we blogged about earlier this year, shows how these work. Starting in the company's 4th quarter, shareholders at Apple will receive a quarterly dividend of $2.65 per share. In conjunction with this, Apple filed an 8-K that discusses an amendment to Apple's outstanding RSUs. When the company pays the cash dividend on its common stock, each RSU will also be credited for the same amount. These dividend equivalents will not pay out until the underlying shares vest. At that time, the accumulated dividend equivalents either will pay out in cash or will be used to pay the taxes on the income from RSU vesting.

what does the balance sheet tell you

equity of the company and the book value of each share (equity per share). balance sheet tells you the margin of safety if you buy stock in the business. Balance sheet tells you the total assets-total liabilities to find your equity (what you get if a business "dies" today).

what are the 3 risk factors when analyzing an investment

excessive debt, overpaying for an asset, not knowing what you are doing when making an investment

what is the deed of trust

gives the provisions of a bond

what are the two types of market participants involved in futures

hedgers and speculators. Producers or purchasers of an underlying asset hedge or guarantee the price at which the commodity is sold or purchased, while portfolio managers and traders may also make a bet on the price movements of an underlying asset using futures. An oil producer needs to sell their oil. They may use futures contracts do it. This way they can lock in a price they will sell at, and then deliver the oil to the buyer when the futures contract expires. Similarly, a manufacturing company may need oil for making widgets. Since they like to plan ahead and always have oil coming in each month, they too may use futures contracts. This way they know in advance the price they will pay for oil (the futures contract price) and they know they will be taking delivery of the oil once the contract expires. Imagine an oil producer plans to produce one million barrels of oil over the next year. It will be ready for delivery in 12 months. Assume the current price is $75 per barrel. The producer could produce the oil, and then sell it at the current market prices one year from today. Given the volatility of oil prices, the market price at that time could be very different than the current price. If oil producer thinks oil will be higher in one year, they may opt not to lock in a price now. But, if they think $75 is a good price, they could lock-in a guaranteed sale price by entering into a futures contract.

what are the spread combinations for options

hedging spread of options of two different classes so your losses are limited but your upside is more limited as well. You can also do vertical spreads which involves buying a single option and once you sell that option you buy another option of the same class but with a different strike price.

what are leading companies and secondary companies

in an industry or sector leading companies are the best performers for a substantial amount of time. secondary companies are good performers but behind the leader.

what is the least risky investment

in federal notes

on an options table what does vega mean

indicates the amount by which the price of the option would be expected to change based on a one-point change in implied volatility.

what is the difference between industry and sector

industry is much more specific in terms of the focus of a group of companies while sector is more broad since it describes a larger segment of the economy.

what is interest and dividend income

interest can be earned on cash and cash equivalents for companies and dividends are basically a portion of company earnings that go to shareholders so it is not an expense just part of earnings go to shareholders.

what are the biggest risks for bondholders

interest rate risks and credit risk. Since bonds are debts, if the issuer fails to pay back their debt, the bond can default. As a result, the riskier the issuer, the higher the interest rate will be demanded on the bond (and the greater the cost to the borrower). Also, since bonds vary in price opposite interest rates, if rates rise bond values fall.

when should you invest in stocks vs when should you invest in bonds

invest in stocks when rate of return is higher than bonds coupon rate and vice versa for when you should invest in bonds. typically when stock prices are very high bond prices give great interest rates and when stock prices are very low bonds give much lower interest rates

what is straight investment

investment for income only (not speculation/grand profits)

for the credit provider ratings what are the tow different types of ratings

investment grade debtors and non-investment grade debtors. investment grade and higher on the spectrum of investment grade is good loans and non-investment grade debtors are bad (very risky) loans

investment grade def

investments that have minimal risk in terms of credit so returns are likely guaranteed

what is a futures contract

is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future.

on an options table what does gamma mean

is the speed the option is moving in or out-of-the-money. Gamma can also be thought of as the movement of the delta.

what is a certificate of designation

it includes all of the intricacies of how a preferred share of a certain companies stock will work/payout.

what happens to equity when net income is reinvested into the company

it increases by how much of the net income the you put into the company giving more assets equaling greater equity.

when looking at a company you should choose a company that is easy to predict what does that mean

it means that based on equity, earnings, and debt this company is easily predictable on where it will be in the future because it is consistent already.

why are most preferred shares callable and what does that mean

it means that the company can buy your preferred shares back so that they won't have to pay the dividend (you will receive the par value of the preferred stock) they do this when interest rates become low so they can issue more preferred shares at the lower interest rate.

the p/e ratio is low what does that mean

it means that the earnings are very large compared to the price of the company. typically the price is so low because the equity is very low.

when p/Book value is very low what does that mean

it means that the equity is very large compared to price but they are probably selling at such a low price because there earnings are bad.

what does in/at the money mean relating to options

it means that the option has intrinsic value. A call option in the money is above the strike price and a put option in the money is below the strike price.

what does market value mean (balance sheet talk)

it means the total value of all of the shares of stock. for example outstanding shares times price=market value

what happens to the premium of an option when you do a spread with two opposite option classes

it offsets and the premium you pay is virtually zero since you will be the holder of one option and the underwriter of another making the premiums you owe and earn balance out.

why is net tangible assets good to look at if a company has good will or/and preferred stocks

it takes away goodwill and preferred stock when determining equity. net tangible assets=equity-intangibles (which is goodwill)- preferred stock

what is the actual bond yield

it takes inflation into account when determining your yield. bond yield-inflation rate=actual bond yield

what does a yield curve tell us about the future of the national economy

it tells us how the fed is trying to control the economy. for example a flat yield curve could signal that they are trying to stabilize the economy. a linear yield curve could show that they are trying to pump up the economy.

less risk usually has ____ reward and more reward usually has ____ risk

less, more

what do spreads in option do to your profitability and loss

limit them both

what are the articles of incorporation

list all of a companies stock issues.

shorter term loans have ____ coupon rates while longer term loans have _____ coupon rates

lower, higher

what does out of the money mean relating to options

meaning an option has no intrinsic value, only extrinsic value. A call option is OTM if the underlying price is below the strike price. A put option is OTM if the underlying's price is above the strike price. these are typically cheaper than in the money options.

what is difference between money market and capital market

money market is short term debt investments and capital market is long term debt investments

what does accounts payable mean

money owed by a company to its creditors. Accounts payable include all of the company's short-term debts or obligations. For example, if a restaurant owes money to a food or beverage company, those items are part of the inventory, and thus part of its trade payables.

what do most option holders do when the contract expires

most trade out if it successful obtaining their profits while the unsuccessful ones they let become worthless and pay the premium. very few actually exercise the options and hold the stock waiting until another time to sell/buy the stock on the stock market.

do bonds and notes do compound interest. if not what can you do to gain compound interest

no it doesn't; the original principle is paid interest on based on the number of days between coupon payments. since no compounding you can reinvest earnings back into similar securities to gain more money from investments.

are commodities affected by inflation

nope, because the prices of the commodities constantly adjust to inflation and if you buy a futures contract and inflation results in a rise in prices you will be getting in at an even bigger discount since the price that you locked in is before inflation.

are spot prices and future prices the same

nope, they are different and the futures price either gravitates lower to the spot price or upward to the stock price depending on if it is a backwardation market or a contango market

what happens when a bond hits the open market. what two things can happen to the face value.

once the bond hits the open market, the asking price can be priced lower than the face value, called a discount, or higher, called premium.2 If a bond is priced at a premium, the investor will receive a lower coupon yield, because they paid more for the bond. If it's priced at a discount, the investor will receive a higher coupon yield, because they paid less than the face value.

what are owner earnings (free cash flow)

owners earnings basically account for the money that owners profit from accounting earnings which is net income. owners don't keep all earnings as some go to capital expnditures which don't increase book value, so some of the accounting earnings don't increase book value or go towards dividends so owners earnings is always less than accounting earnings book value growth + dividends After the reinvestment, the money will also have two paths it could travel down. The first path is to use the money to reinvest into the maintenance and care of the existing equipment. The second path is to spend the money to expand the assets of the business, i.e., buy more equipment. If the funds flow in the first direction, called Capital Expenditures, the company's book value will display little or no growth, because they haven't done anything to grow the business. Only maintain the current equipment, while important, doesn't grow the business. If the funds flow in the second direction, the money will add new income streams to the company, and the new asset adds to the current equity of the company. This second amount added to the dividend already paid out, and the total would be known as Owner's Earnings.

for p/e ratio fill in the blank (were does the P and E go in the sentence) for the following sentence for every ____ dollars that I spend buying this stock i will receive ___ dollars in profit in a year later

p goes after every and e goes after receive.

preference shares

preferred over common shares while claiming a company's earnings in the form of dividends, and net assets upon liquidation. Preference share can be cumulative, non-cumulative, participating, or non-participating.

premium (option)

price that the holder pays in an option contract. premiums rise when market volatility rises, option is in the money, and when maturity date is further away.

what is the equation for return on equity

roe=eps/bv

what are short term capital gains. what are long term capital gains. what are 5 year capital gains tax

short term capital gains are investments that your profit or loss becomes realized in less than a year and long term capital gains are investments that you profit or loss becomes realized in over a year. 5 years or longer investments are taxed differently as well.

on an options table what does volume mean

simply tells you how many contracts of a particular option contract were traded during the latest session. A large percentage change in option price along with above-average volume is a good indication that the market is moving in the direction of the price change. Whereas, a large percentage change in option price along with below-average volume is less likely to predict a market swing.

to find the intrinsic value of a company what does the company have to be in terms of its financial progression throughout the last couple years (10 years-present)

stable/trending in a consistent positive direction; not erratic and unpredictable

what is a way to hedge dangerous losses that may come from being an underwriter of an option

take an opposite position in an opposing option class

what happens to target company price and predator company price during a takeover and why

target price goes up and predator price dips. this happens because historically the predator overpays for a target company which usually doesn't provide much value for the predator so it is seen as a bad investment.

what is the VIX and what does what it tells you indicate

tells you the volatility in the overall market since it is derived from the volatility of the important indexes. higher the vix (or volatility) the more fear in the market.

what is the efficient market hypothesis

that the market automatically adjusts stock prices to the exact value of a company simultaneously and to exact precision when altercations occur in the fundamentals of a security

on an options table what does theta mean

the Greek value that indicates how much value an option will lose with the passage of one day's time.

what is earnings coverage for bonds

the amount that earnings can cover interest payments

what is the biggest driver of the option price by the expiration date

the biggest driver of outcomes is the price movement of the underlying security or stock.

what is the coupon when discussing bonds

the coupon is the interest rate paid on your principal loan paid on set dates often quarterly

what is the difference between yield to maturity and the current yield

the current yield accounts only for the coupon rate while the yield to maturity accounts not only for the coupon rate but also for the par value that you bought it for (if you bought it after the issue date)

expiration date (options)

the date that the option expires and that the options final value is determined and it can no longer be traded. the further an option is from the expiration date the higher the premium since more time=higher chance of stock going past strike price. also side note, options are great in times of volatility.

how is money inflated

the fed increases the nations money supply

for margin of risk what determines the amount of risk that an investment has. which scenario between equity and market price per share gives the best margin of safety.

the larger the difference between the equity of the company/business and the market price per share the larger the risk. closer equity is to market price the safer the investment.

on an options table what does bid mean

the latest price level at which a market participant wishes to buy a particular option.

on an options table what does ask mean

the latest price offered by a market participant to sell a particular option.

how safe are government bonds in terms of all of the bonds

the most safe

what does the income statement tell you

the net income, earnings, and the per share earnings

option contract multiplier

the number of shares that the option contract can be converted into. Typically each option has a contract multiplier of 100 (each option can be converted into 100 shares of stock). the option contract multiplier tells you how much you are paying for the contract since it is the option multiplier number (for example 100X) times the strike price (for example 10 dollars) so the contract is worth 1,000 dollars. this means that when the contract expires you can choose instead of taking profits to own 100 shares of the stock instead since the multiplier is 100 it means you own 100 shares at the strike price.

what are call provisions in bonds

the outline of options the company may have to buy back the debt at a later date

when bonds come closer to maturity what happens to their par value

the par value gets closer to its face value on its issue date. A bond owner won't sell the bond at a discount price when she will soon receive the higher par value amount, so potential buyers have to pay more. Buyers won't pay much of a premium price for a bond nearing maturity because they will receive only the par value when the bond is redeemed.

strike price (options)

the price at which an option will be bought or sold if an option is exercised

on an options table what does the strike price mean

the price at which the buyer of the option can buy or sell the underlying security if he/she chooses to exercise the option.

participating preferred stock

the right to receive the standard preferred dividend plus an additional dividend based on some condition like if the company's profits exceed a certain level. In case of liquidation, participating shares are entitled to additional distribution of net assets.

when should you sell an investment

the stocks fundamentals negatively change or a higher return is expected by trading another asset (while accounting for the loss (if any) of selling your currently owned asset)

what is the FED and what does it do

the united states federal reserve manages the u.s. currency ($) and ultimately controls the u.s. economy. there goals are to maximize employment and stabilize prices. supervise and regulate banks. maintain the stability of the financial system. and service debts for the u.s. federal government. during bubbles they raise interest rates and during recessions they lower rates. adjusting interest rates adjusts spending habits so the fed controls peoples habits through interest rates.

what is the difference between total current assets/liabilities vs assets/liabilities

the word current means that those assets or liabilities are going to be converted into cash in the short term while just plain assets and liabilities are more long term assets or liabilities.

what does a long term company mean and why should you always and only invest in these

these are companies where there product or service will be around 30 years from now. sustained earnings will provide you with more money either through dividends or the share price. You will be able to hold these companies longer so you will be paying less in capital gains taxes since the longer you hold an investment the less it is taxed (the longer term tax brackets for capital gains make you pay less tax)

who makes up the board of directors and what do they do.

they are large share holders and they represent the individual shareholders that elect them to represent them.

why is it dangerous to buy IPO's

they aren't that often so when they happen investors flood in to buy thinking that they are getting a deal or getting in early one of the best upcoming company in the nation. however IPO's offer shares at a high premium because of the huge demand and the desire of the company to make huge money from the IPO.

what most often happens to companies in a lot of debt when the market crashes/recessions

they go bankrupt and fail

what do many investors do when they get a coupon interest payment from a bond

they reinvest it into higher yield bonds

what are traditional mortgages

those rated higher than subprime

who are the holders of options

those who buy options

who are the writers of options

those who sell options

what does changing interest rates affect more long term or short term bonds

thye affect long term bonds more since over the long term interest rates are likely to increase rather than decrease so longer term bonds have a higher likelihood of diminishing in price compared to short term bonds which deal more with interest rate fluctuations than the consistent upward interest rate trend

why would a company issue preferred shares

to raiasse money (especially when on primary market), to have the flexibility to not make dividend payments or delay them so that they accrue and they pay back later, and to retain equity in the business for common shareholders in the long run

difference between total assets/liabilities and liabilities/assets

total assets is all intangible and tangible assets while assets is all tangible assets. total liabilities is both long term and short term liabilities, liabilities is only short term

what are combinations in spreads

trades with both a call and a put.

if a stock price increases what happens to the value of a call option. what happens to the value of a put option

value of call option increases (in terms of worth to the holder and the option price on the market increases). value of put option decreases (in terms of worth to the holder and the option price on the market)

if a stock price decreases what happens to the value of a put option. what happens to the value of a call option.

value of put option increases (in terms of worth to the holder and the option price on the market increases). value of call option decreases (in terms of worth to the holder and the option price on the market)

how do you know that you are dealing with a growth company

when the book value is increasing by a ton each year (15-20%)

when are the better times to write options

when volatility is less

are dividends taxed

yep

do option underwriters have unlimited risk

yep

are some preferred stock holders for certain companies given voting rights

yep in some companies

what is great about treasury inflation protected securities

you don't have to worry about inflation taking away profits from your investment.

what do you have to worry about if you buy a bond after the date it issues when the par value is higher or lower

you have to look to see if you will be losing money if you are holding until the maturity date since if you bought when par value was higher than face value and maturity date is soon the par value will likely go back to the original face value so you will lose money because you paid a premium by buying it late. if you buy at a price under the face value you will make money since you make a premium when par value goes back to original face value

how do you calculate book value when a company has preferred stock

you subtract the preferred stock par value by the equity

what does p/book value tell you

your margin of safety on your investment since if you sell the company right after you buy it you are making the companies book value so if you purchase a company at a book value of less than 1 and sell it right away you are making money since the companies equity is worth more than it is selling for.