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46 Cards in this Set
- Front
- Back
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• Raise financial capital by
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o Early stage investors
o Reinvesting profit o Borrowing in banks/bonds o Selling stock |
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• Early stage financial capitol
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dip into own bank account
part ownership angel investors venture capital |
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o Angel Investors
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well to do individuals who put their money into small companies
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o Venture Capital
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financial investments in new companies – still small in size but have the potential to grow substantially
• Get money from banks, colleges, insurance companies, corporate pension funds |
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o Bond
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financial contract through which a borrower (corporation) city, state, or federal government agrees to repay the amount that was borrowed and a rate of interest over a period of time in the future
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o Corporate Bonds
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issued by firms that wish to borrow
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o Municipal bonds
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bonds issued by cities that wish to borrow
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o Treasury bonds
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bonds issued b the Federal Government through US department of Treasury
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o Bondholders
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those who own bonds and receive the interest payments
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o Stock
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ownership of a firm
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o Shares
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the stock of a company is divided into individual shares
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o Shareholders
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those who own shares in stock
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How/When does a company get money when its owned by shareholders
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• When the company sells its stock it receives money
• IPO (Initial Public Offering) – when a firm sells shares to outside investors |
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IPO - initial public offering
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when a firm sells shares to outside investors
provides funds financial capital for investments |
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Corperate stock rate of return
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o Dividend – Direct payment to shareholder
o Capital Gain – a financial gain from uying an asset and selling it at a higher price |
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Dividend
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Direct payment to shareholder
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Capital Gain
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a financial gain from uying an asset and selling it at a higher price
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• Private Company
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owned by people who run it on a day to day basis
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o Sole Proprietors
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run by individuals
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o Partnerships
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run by a group
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• Public Company
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a firm that has sold stock to the public can be bought and sold by investors
o Shareholders vote for a board of directors- they hire top executives |
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o Borrowing money disadvantage
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• Paying payments on time
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o Borrowing money advantage
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• Can sell company, keep profits for self
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Firms must choose between two sources of financial capital
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banks or bonds
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o Mechanisms for saving available to households
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• Deposits in bank accounts
• Mutual funds • Bonds • Housing • Stocks • Tangible assets (gold) |
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o Intermediary
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one who stands between the two other parties
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o Financial intermediary
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an institution like a bank that receives money from savers and provides funds to borrowers – saver and borrower never meet
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o Checking Account
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bank account that pays little or no interest, but gives easy access to money – write check or use “debit” card
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o Debit Card
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card that lets you make purchases where the cost is immediately deducted from your account
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o Savings Account
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a bank account that pays an interest rate but with drawing the money required you to make the trip to the bank or teller machine
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o Certificate of Deposit (CD)
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A mechanism for a saver to deposit funds at a bank and promise to leave them at the bank for a time in exchange for a higher rate of interest
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Bank Account - Rate of return, risk, liquidity
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• Low rate of return
• Low risk • High liquidity |
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o 3 components of Interest Rate
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• Compensation for delaying consumption
• Adjustment for inflation • Risk premium |
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o Junk Bonds
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bonds with relatively high interest rates to compensate for high chance of default
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o Note
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Treasury bond
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Bond - Rate of return, risk, liquidity
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• Low to moderate rate of Return
• Low to moderate risk • Moderate liquidity |
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o Fundamentals Trading
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buying or selling stock based on estimates of the future expected profits
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o Momentum Trading
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buying or selling stock by following current trend; that is, buying when the price seems to be rising, selling when the price seems to be falling
• Voltaire – influenced this trend |
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Invivudual Stocks - Rate of return, risk, liquidity
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• High rate of return for lengthy times
• High risk • Moderate liquidity |
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o Diversification
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Buying stocks/bonds from a wide range of companies
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o Mutual Funds
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a fund that buys a range of stocks and bonds from different companies, thus, an easy way to diversify
o Many focus on a category of stock – location, industry etc. |
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o Index fund
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a mutual fund that seeks to mimic the overall performance of the market
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o Equity
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monetary value a homeowner would have after selling the house and repaying any outstanding bank loans used to buy the house
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o Assets - rate of return, risk, liquidity
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• Moderate Rate of Return
• Moderate Risk • Low liquidity |
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• Random Walk Theory
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on any given day, stock prices are just as likely to rise and to fall
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Get rich slow and boring
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additional education
save money early in life |
