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146 Cards in this Set
- Front
- Back
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all stock
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Each share of stock has the same rights as each of the other shares within a given class of stock
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Preferred Stock
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has certain preferences over common stock.
-Payment of dividends -Redemption -Liquidation rights |
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Features of
-Cumulative preferred stock |
Unpaid cash dividends accumulate and must be paid before any cash dividends are paid to the common stock holders
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Features of
-Convertible preferred stock. |
Can be converted to shares of common stock.
Provides investor with added safety of preferred stock and greater speculative gain through conversion to common stock |
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Rights of Common Shareholders
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Right to vote for the board of directors
Right to vote on certain corporate matters; -sale of corporate assets -dilution of ownership interest Right to share in the distribution of earnings (dividends), if earnings are distributed |
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Buying and Selling Stocks
-Primary market. |
A market in which an investor purchases financial securities via an investment bank, or other representative, from the issuer of those securities.
An investment bank is a financial firm that assists corporations in raising funds, usually by helping to sell new security issues. An IPO occurs when a corporation sells stock to the general public for the first time. |
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Buying and selling Stocks
-Secondary market. |
A market for existing financial securities that are currently traded among investors via brokers.
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Secondary market for stocks
-Securities Exchanges |
A marketplace where member brokers who represent investors, meet to buy and sell securities.
The securities sold at an exchange must be listed, or accepted for trading, at the exchange. |
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Secondary market for stocks
-The Over-the-Counter (OTC) market. |
Network of dealers who buy and sell the stocks of companies not listed on a securities exchange.
Most OTC securities are also traded over the NASDAQ which is an electronic marketplace for 3,200 different companies |
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Evaluating a Stock Issue
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Investors need to evaluate the company and the industry in which the stock is issued
Logical place to start is with the classification of the stock Investors can use different sources to evaluate stocks |
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Classification of stock -By Market Capital (Shares outstanding x price)
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-Large Cap > $5 billion
-Mid Cap $0.5 - $5.0 billion -Small Cap < $500 million -Penny stocks < $1.00 per share |
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Classification of stock -By Risk
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-Blue Chip – Conservative - Stable
-Income – More dividend than growth -Growth – more growth than dividend |
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Gathering information for stocks -internet
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Corporation’s home page has more up-to-date information than their printed materials.
Free Internet Finance Sites “You get what you pay for” |
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Gathering information for stocks
-Stock Advisory Services |
Prepare research materials that are a good supplement to other sources of information.
Charge a fee. As an investor, your job is to interpret the information provided. |
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Three Most popular Stock advisory services
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Three most popular are:
-Standard and Poor’s reports. -Value Line. -Mergent’s Handbook of Common Stock. |
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How to read a news paper financial secion
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Most metropolitan newspapers provide basic information on stocks
Stocks are listed alphabetically Stock information is listed across the table |
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Stock indices
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-DJIA
-NASDAQ -S&P500 |
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Corporate earnings
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play a large part in the increase or decrease in value of a stock.
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Earnings per share
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are the corporation’s after-tax income divided by the number of outstanding shares of common stock.
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Price-earnings (PE) ratio.
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Price of one share of stock divided by the earnings per share of stock.
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Investment -Long-term techniques.
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Buy and hold.
Dollar cost averaging. Direct investment and dividend reinvestment plans. |
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DeGeorge Stock Tip #3
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DeGeorge believes that a stock’s PE ratio will gravitate towards its growth rate
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Investment -Short term Techniques
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Buying stock on margin (borrowing money).
Selling short (borrowing stock). Trading in options (predetermined price). |
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Degeorge Stock tip#4
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If you cant afford it you cant afford to loose it
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Mutual Fund
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is a “company” that pools the money of its investors to invest in a variety of securities
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Mutual funds provide
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individual investors the ability to diversify their portfolio without incurring the cost of buying many different stocks.
When you purchase an interest in a mutual fund you indirectly purchase an interest in every stock that is owned by the fund. |
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Classification by objective
-Stock funds |
-Aggressive Growth (small-cap & -IPO’s)
-Growth (small cap) -Income (high dividend yield) -Large Cap (stable) -International -Sector Funds (particular industry) -Regional Funds -Socially Responsible Funds -Indexed Funds |
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Bond funds
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High Yield (junk bonds)
Federal – State – Corporate Short term – Intermediate – Long-term |
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Other Funds
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-Asset Allocation Funds
-Balanced Funds -Fund of Funds |
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Closed-End (7%).
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– limited number of shares issued with managers actively buying and selling. Price of shares depends on market demand which is generally based on managers performance
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Exchange-Traded Funds (ETF) (6%)
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closed end with limited trading activity therefore lower cost
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Open-End (87%)
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number of units change as investors put money in or take money out. Price of shares (units) depends on the Net Asset Value of the portfolio / shares or units
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Costs associated with mutual funds
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-Commission
-Management Fees -Be Careful.Most funds report income BEFORE fees. Therefore, “return” – expense ratio = your real return |
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Costs associated with mutual funds
-commission |
-Front End (load or A Fund)
-Exit (Back-end or B Fund) -No-Load |
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What % of mutual funds out-perform the S&P 500?
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Traditionally, less than 30% of mutual funds out perform their corresponding S&P Index
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The Development of Accounting Regulation in the United States
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-Generally Accepted Accounting Principles
until -Stock Market Crash of 1929 |
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Securities and Exchange Acts of 1933 and 1934
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-Created the Securities and Exchange Commission
-Requires financial statements in accordance with GAAP -Requires an unqualified auditors’ opinion |
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SEC Reporting
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Registration Statements for primary transactions (S-1, S-2)
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SEC Reporting
-secondary market |
Periodic Updating to facilitate secondary market
Form 10-K – Annual Report Form 10-Q – Quarterly Report Form 8-K – Current Report Form 14A – Proxy Statement |
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SEC Form 10-K
-Item1 |
Description of Business
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SEC form 10-k
-Item 6 |
Selected Financial Data (5 years minimum)
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SEC Form 10-k
-Item 7 |
– Managements Discussions and Analysis of Financial Condition and Results of Operations
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SEC Form 10-k
-Item 8 |
Financial Statements and related reports
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GAAP
-1933 |
- American Institute of Certified Public Accountants (AICPA)
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GAAP
-1973 |
Financial Accounting Standards Board (FASB)
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GAAP
-2003 |
– Convergence effort
International Financial Reporting Standards |
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Balance Sheet
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-Measures financial position AS OF
the end of a fiscal period -Assets = Liabilities + Equity -Arranged in order of liquidity |
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Statement of Changes in Equity
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Shows how equity changed DURING a fiscal period
Transactions with owners Income -Net Income – (management has control) -Other Comprehensive Income |
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Income Statement
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-Measures managements performance
-Rev – Exp + Gains – Losses -Dollars per share connects to market |
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Statement of Cash Flows
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Sources and uses of cash by function:
-Operating -Investing -Financing |
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Footnotes to Financial Statements
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-Maybe 40% of American’s can read financial statements
-At best 25% of those who can read financial statements actually read the footnotes -“Principles Based” IFRS relies more on footnote disclosure than does current US GAAP |
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Reports of the Independent Registered Public Accounting Firm (Auditors)
-Financial Statements |
-Unqualified -Qualified (except for)
-Adverse -Disclaimer |
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Reports of the Independent Registered Public Accounting Firm (Auditors)
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-Material Weaknesses
-Resolution of prior MW |
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Management
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is responsible for the fairness and accuracy of the financial statements and maintaining a system of internal controls.
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Sarbanes-
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Oxley provides for criminal penalties for the CEO and CFO.
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Elaine purchased her living unit in a building with 5 other separate units. She purchased a _______
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1. Condominium
2. Duplex 3. Manufactured home 4. Single-family dwelling (5.* Townhouse) |
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Brett bought a house 5 years ago for $100,000. At that time, he borrowed $95,000 from his bank. The house is now worth $110,000. If he wants to stop paying his private mortgage insurance, he can
-request termination- of PMI. The current value of his mortgage must be no higher than |
$110,000 x *.20 = 22,000
$110,000 – 22,000 = 88,000 |
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Carrie bought a house 5 years ago for $200,000. At that time, she borrowed $195,000 from her bank. The house is now worth $225,000. Her PMI will
-automatically be dropped- when her mortgage balance drops to |
$225,000 * 22% = $49,500
225,000 – 49,500 = $155,500 |
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Chapter 7 #13 - 39% Georgina and Henry are looking at houses. Which of the following is correct?
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1. A "handyman's special" will be set at a higher price than one that is in "move in condition".
*2. They should assess the school system in the area they want to live.* 3. The amount they can afford for housing will be primarily determined by the down payment. 4. Their first house should be their "dream house". 5. All of the above are correct. |
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Chapter 7 #6 - 37% Which of the following expenses is NOT usually recommended or necessary for a tenant?
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1. Security deposit
2. Utilities 3. Insurance * 4. All of the above are expected* 5. None of the above is correct |
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Chapter 9 #12 - 58% Which of the following statement is correct?
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1. A premium reimburses you for hospital stays, doctors' visits and medications
2. A premium is the amount your employer will pay for your health insurance coverage. 3. Disability income insurance pays the actual medical costs. 4. Medical expense insurance provides payments to make up for income of a person who cannot work as a result of injury or illness. *5. Most medical expense plans reimburse an individual for hospital stays, doctors' visits and medications.* |
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Chapter 8 #10 - 43% Homeowner's insurance covers all except what?
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1. Three months in a hotel after a house fire
* 2. A diamond necklace valued at $25,000* 3. A three year old television 4. A fire that damages your neighbor's roof that was caused by a spark from your grill 5. Medical costs for a visitor who slipped on your steps and broke his ankle |
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Chapter 8 # 8 - 31% The two basic types of risk that people face regarding their personal property are
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1. Basic and criminal
*2. Physical damage and destruction* 3. Destruction and basic 4. Physical damage and damage caused by criminal behavior 5. Negligence and criminal behavior |
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You are considering an investment in a municipal bond that has a yield of 4.5 percent. Your tax rate is 25 percent. What is your taxable equivalent yield
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4.5% / .75(1-.25) = 6.0%
Proof 6.0 -1.5(6.0*.25)= 4.5% |
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Daniel wants to invest in a security that can be converted to a different one that provides ownership in a company. What does he want to invest in?
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1. Dividends
2. Stock splits 3. Convertible common stock 4. Proxies *5. Convertible preferred stock* |
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Mylan Laboratories Inc., with it’s primary manufacturing facility in Morgantown WV, increased from $0.30 per share to $24.25 per share during the decade of the 1980’s
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The 8,084% increase made MYL the best performing stock in America for the decade!
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What is stock and why is it issued?
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Ownership of a corporation is evidenced by shares of stock.
Corporations issue stock to raise large amounts of capital without incurring interest or being required to repay the funds, and to reward employees. Corporations are not obligated to pay dividends. |
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Why Investors Purchase Stock?
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Investors can make money in two ways.
-Income from dividends -Dollar appreciation in the market value of the stock. |
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Bond
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pay a known interest payment and a known maturity amount.
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Stocks
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have uncertain dividends and no maturity and therefore more risk than bonds
-Higher Risk should = Higher Return |
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Stock Splits
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-More shares outstanding
-Lowers the price per share -NO ECONOMIC CHANGE Company’s Worth $ 500 $ 500 Shares 10 20 Price per share $50.00 $25.00 Shares Owned 1 2 Value $50.00 $50.00 |
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Degeorge Stock tips 1 & 2
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1. Never invest more than you are willing and able to loose.
2. Buy low. Sell high. (sorry) |
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Renting pros n cons
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Pros
-Easy to Move -Fewer responsibilities -Minimal financial commitment Cons -No tax benefits -limitations on remodeling -Restricted activities |
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Owning pros and cons
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pros
-Pride of ownership -Financial benefits -Lifestyle flexibility Cons -Financial commitment -Higher living expenses -Limited mobility |
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Lease Agreement
-Negotiation points |
Sublet -Utilities -Occupancy Permit
Renewal -Security -Late Payments |
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Renter’s Rights and Obligations
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-Right to live in decent housing
-Implied warranty of habitability -Right to privacy and peaceful and quiet enjoyment of the premises -Proper notice before eviction (<1 month) -Right to return of security deposit less just cause deductions -DO NOT have the right to withhold rent |
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Types of Housing
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Single family dwellings
Multi-family dwellings Condominiums Co-operative housing Manufactured homes -Mobile Homes -Prefabricated homes Building a Home |
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Home Buying Activities Step 1B: Do you qualify?
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How much do you think you can afford?
Do you qualify? How much can you borrow? Preliminary assessment -Personal financial statement -Budget Pre-qualifying |
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Home Buying Activities Step 2 – Find and Evaluate a Home
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Select a Location
Real Estate Agents -Sellers Agents -Buyer Agents Home Inspection |
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What is a Realtor
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Realtors are members of the National Association of Realtors
-Certification -Code of Ethics -Continuing professional education Access to Multi-List Service and lockboxes Realtors do this for a living |
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Where to find a Realtor
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www.Realtor.com
Read bios and meet agents Find an agent you are comfortable with This is the biggest monetary decision you will make until you buy your next house |
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Finding a house to buy
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You decide what you want to see
-Price range -Type of housing -Location Agent provides the most up to date listing Realtor schedules dates and times |
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Looking at your first home choices
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Keep an open mind
Wake-up call to price range, location, market More or less house More or fewer amenities First day is rarely the last day |
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You found the house for you
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Access to pricing of comparables
Preparation of an offer -Earnest money Negotiations with the seller |
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Home Buying Activities Step 3: Price the Property
-Determining the home price |
Make an offer – purchase agreement
Earnest money Contingencies -Loan Approval -Home Inspection -Title search -Pest Inspection Negotiate the price -Closing Costs |
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When under contract your realtor
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can provide a fully executed purchase agreement
-Communicate with loan originator |
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Realtor can be your liaison for contingencies:
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-Property inspection -Appraisal
-Radon inspection -Sewer inspection -Pest inspection Survey |
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The Closing on a house
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Realtor and loan originator will attend
Lots of legal paper work Sellers may be in attendance You get access to your new home Eat pizza and drink Asti on the floor |
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Obtaining financing
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Down Payment
Mortgage Loan -Interest -Points -Duration |
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What is a Mortgage?
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1.a conveyance of an interest in property as security for the repayment of money borrowed.
2.the deed by which such a transaction is effected. |
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Types of Mortgages
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Conventional 30 year fixed
Conventional 15 or 20 year fixed FHA/VA 15 and 30 year fixed Adjustable Rate Mortgages (ARM) Option ARM (allows for interest only) Interest Only Mortgage |
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what is FHA/VA 15 or 30 year fixed and who is eligible?
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Federal Housing Authority
Veterans Administration |
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Creative financing WARNING
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Convertible ARM
Balloon Mortgage Growing Equity Mortgage (GEM) Shared-appreciation mortgage (SAM) Second Mortgage – Home Equity Loan Reverse Mortgage |
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determining your monthly payment
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Price of the house
Down payment Interest Rate -Points Term (duration) of the loan Insurance and Tax escrow |
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The Application Process
- The FIVE C's- revised and modified |
Character
Capacity Capital Collateral Conditions (FICO Score) |
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Home selling activity
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Prepare your Home for Selling
Determine the Selling Price Services of A Real Estate Agent Sale by Owner -Time, value added, protection |
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What is Risk?
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Disability
Illness Death Retirement Property loss Liability |
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Risk Management
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Risk Avoidance
Risk Reduction Risk Assumption Risk Shifting |
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Insurance
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Risk-Sharing contract between a policy holder (the insured who is shifting risk) and a risk-sharing business (the insurer which is assuming risk).
Policy Premiums |
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Insurance Policy
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contract
-Coverage -Conditions |
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balance sheet
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-Measures financial position AS OF
the end of a fiscal period -Assets = Liabilities + Equity -Arranged in order of liquidity |
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Home and property insurance
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Building and other structures
Additional living expenses Personal property Personal Liability -Umbrella policy -Medical payments coverage Specialized Coverage |
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Home insurance cost factors
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Actual Cash Value v Replacement Cost
Other factors -Location -Type of home -Coverage amount and policy type -Discounts Deductible |
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Automobile Insurance Coverage
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Bodily Injury Coverage
-Liability -Medical Payments -Uninsured motorist protection Property Damage |
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Bodily injury
-Worst car rating |
1.Suzuki Forenza
2.Mitsubishi Lancer 3.Kia Spectra 4.Scion tC 5.Toyota Yaris |
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bodily injury
-Best car rating |
1. Chevy Corvette
2. Toyota Tundra 3. Infinity M35 4. GMC Acadia 5. Chevy Silverado |
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Property Damage
-Worst car rating |
1. BMW M5
2. Hummer H2 3. Cadillac Escalade 4. Mitsubishi Lancer 5. Dodge Ram 3500 |
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Property Damage
-best car rating |
1. Chrysler T&C
2. Lincoln MKX 3. Mercury Sable 4. Saturn Outlook 5. Hyundai Verocruz |
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auto insurance coverage
-insurance talk |
100/300/50
-$100,000 bodily injury per person -$300,000 bodily injury per accident -$ 50,000 property damage Minimum Recommended |
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Other Coverage
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No-Fault
Wage-loss insurance Emergency road service Rental reimbursement |
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auto insurance costs
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Legal Concerns
Property Values Motor Vehicle Insurance Premium Factors -Vehicle type -Rating territory |
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Death fatality rate for pa and wv
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WV-380
PA-1,358 |
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Health insurance
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medical costs incurred as a result of injury or illness
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Disability
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loss if income as a result of injury or illness
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Health Insurance Portability and Accountability Act of 1996
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Can not be turned down for pre existing conditions
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Health insurance coverage
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Basic Health
-Physician -Hospital & Surgical (limited) -Pharmaceuticals Major Medical Long-Term Care |
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Health Insurance Provisions
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Negotiated Discounts
Co-payments Deductibles Co-Insurance Exclusions, limitations and maximums Renewable, cancellation and termination |
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Private Health Care Plans
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Private Insurance Companies
Service Plans -Blue Cross (Hospital) -Blue Shield (Surgical & Medical) HMO’s – Health Maintenance Org. PPO’s – Preferred Provider Org. |
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Medicare (elderly)
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Part A - hospital
Part B - medical Part C – Approved private insurers for A&B Part D – Prescription Drug Coverage Medicare Supplement (private |
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Medicaid
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low income and disabled
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Disability Insurance
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Worker’s Compensation
Employer provided group insurance Social Security Private Insurance |
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Life Expectancy
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Macau – China 84.4
Andorra – 82.5 Japan – 82.1 Singapore – 82.0 San Marino – 82.0 France 81.0 Germany 79.3 USA 78.1 Russia 66.0 |
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What explains the different life expectancies
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The Japanese eat very little fat and suffer fewer heart attacks than Americans.
The Germans drink a lot of beer and eat lots of sausages and fats and suffer fewer heart attacks than Americans. Conclusion Eat and drink what you like. Speaking English is apparently what kills you. The Mexicans eat a lot of fat and suffer fewer heart attacks than Americans. The Chinese drink very little red wine and suffer fewer heart attacks than Americans. The Italians drink a lot of red wine and suffer fewer heart attacks than Americans. |
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Life insurance
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Risk-sharing Contract
Protects those who depend on you from financial losses resulting from your death. Life Insurance can be the cornerstone for successful financial planning. |
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Insured
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person whose life is covered
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Beneficiary
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recipient of proceed
Contingent Beneficiary |
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Owner
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person who pays the premiums (normally the insured)
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Tax benifits for health insurance
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No tax deduction for premiums
No income tax on death proceeds Growth in cash values is typically tax deferred Estate Taxes |
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Estimating Life Insurance Requirements
-Easy Method |
70% of 7 times (or 5-7 times)
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Estimating Life Insurance requirements
-DINK Method |
– funeral expenses + ½ of all obligations and debt
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Estimating Life insurance requirements
-Nonworking Spouse Method |
– years until youngest child turns 18 X $10,000
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Estimating Life Insurance requirements
-Family Need Method |
varies based on desired lifestyle (see page 325)
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Types of Insurance Companies
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Stock companies – non-participating
Mutual companies – participating Policy dividends |
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Types of policies
-term |
Term (temporary) Insurance
Renewable Multiyear level Conversion Decreasing Return of premium |
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Types of life death benifits
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Approximately 95% of term life policies lapse without being used for their intended purposes!
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Types of policies
-Permanent |
Permanent Life Insurance
Whole Life aka straight life, cash value, ordinary life Limited Payment Policy Variable Life Policy Adjustable Life Policy Universal Life Policy Universal Variable Life |
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Group Life Insurance
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Term life offered to members of a group
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Credit Life Insurance
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Used to pay off certain debts
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Endowment Life Insurance
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Survivor insurance
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Key policy provisions
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Naming the Beneficiary
Non-forfeiture clause (cash value) Loan Provisions Other Provisions Incontestability Clause Grace Period Policy Reinstatement Misstatement of Age Clause Suicide Clause |
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Riders
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Waiver of Premium Disability
Benefit Accidental Death Benefit Cost of Living Protection Accelerated Benefits Second-to-die Option Living Benefit Long-term Care Option |
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Settlement options
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Lump-Sum Payments
Limited Installment Payments Life Income Options Proceeds Left with the Company |
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Buying life insurance
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Sources - many
Rating Insurance Companies (see page 335) Choosing your Agent - trust |
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Premiums
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+investment
-claims -administration costs =profit for insurance company |
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Factors Impacting Cost of Insurance
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Type of insurance
Gender Age Tobacco Use State of Residence Health History Blood Test High Risk Hobbies |
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What is an Annuity?
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Insuring Income / Living Benefits
Immediate or deferred Guaranteed Death Benefit Fixed and Variable formats |
