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25 Cards in this Set
- Front
- Back
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What are the two types of capital? Which type pays interest and which pays dividends? |
Debt capital pays interest Equity capital pays dividends |
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Define: Dividend Are corporations required to pay dividends? |
A payment/distribution of a corporation's profits to shareholders. No. |
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What is the cut-off between short-term and long-term? Who sets short-term interest rates? Who sets long-term interest rates? |
One year The Fed Investors in the bond market |
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Define: Interest Spread Basis point Real |
Interest is the cost of borrowing money Spread is the difference between two rates Basis point is 1/100th of a percentage, 0.01% = 1 bp Real has the effects of inflation removed |
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What is the difference the standard of suitability and fiduciary responsibility? Which applies to a stock broker? |
The suitability standard applies to stock brokers and means they must recommend suitable investments. Fiduciary responsibility places the interests of the client first. |
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What are the two products of a fund?How do funds earn revenues? |
The fund itself is a product and so is the professional money management.Funds earn asset management fees and sales load/commission. |
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What are the 8 Ethical Principles? How are they defined? What is scapegoating? |
1. Rule of Law - Comply with the spirit and intent of laws and regulations. 2. Respect - Honor the rights, freedoms, views, and property of others. 3. Fairness - Engage in equitable competition and relationships. 4. Accountability - Accepting responsibility for your decisions and their consequences. Scapegoating - Unfairly blaming an individual or group, especially one that is vulnerable. 5. Integrity - Act with honesty in all situations 6. Transparency - Maintain open and truthful communications 7. Viability - Creat long-term value for all relevant stakeholders. 8. Trust - stakeholder relationships must be built on mutual respect. |
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What are the four types of businesses and their distinguishing features? |
1. Sole proprietorship - One owner who is known as a proprietor 2. Partnership - Two or more owners who are known as partners; partners is a term that is usually used improperly 3. Limited Liability Corporation (LLC) - One or more owners known as members 4. Corporation - More than one owner known as shareholders or stockholders |
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What are the two types of stocks/stockholders? Do business have to issue both types of stock? |
Common and Preferred Public companies have to issue common stock but preferred stock is optional |
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What is the difference between a co. and corp. or inc.? Who can become an owner of a public co. vs. a private co.? |
Co. can refer to any type of business while corp. and inc. refer to corporations. Anyone can become an owner of a public co., private co. are invitation only. |
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Define and give examples of: 1. Municipal bonds 2. Secured bonds 3. Unsecured bonds (other names) 4. Zero-Coupon bonds 5. Callable bonds 6. Convertible bonds |
1. Bonds issued by a state or one of its political subdivisions - State of Colorado bond 2. Bonds backed by collateral - Mortgages 3. AKA Debentures are unbacked by collateral 4. Issued at significant discount, pays no periodic interest, at maturity the bondholder receives par value 5. May be redeemed prior to maturity at the issuer's option 6. May be exchanged for the issuer's common stock at the bondholder's option |
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Are callable bonds called when interest rates fall or rise?
What is a refunding operation?
Does the call feature favor issuers or bondholders?
Does call protection protect the issuer or the bondholder? What is reinvestment-rate risk? |
Fallen
When an issuer sells new bonds at a lower rate in order to pay off old bonds with higher rates
Issuers
Bondholder The possibility that an investor will have to reinvest at a lower rate |
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Define: 1. Corporate charter/Articles of incorporation 2. Authorized stock 3. Issued stock 4. Outstanding stock 5. Treasury stock 6. Pre-emptive right |
1. Filing a corporate charter or articles of incorporation with the state is how corporations are formed 2. The maximum number of shares a corporations may issue 3. The number of shares given to investors in exchange for their capital contributions 4. Issued stock less treasury stock is outstanding stock, these shares are entitled to vote and divideneds 5. Re-purchased stock 6. The ability to maintain a proportional percentage ownership of a corporation |
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What are the two preferences of preferred stock and what do they mean? What is the order of payment in a corporation liquidation? |
Dividend preference means that preferred stock receives dividends prior to common stock. Liquidation preference means that preferred stock receives par value prior to common stock if the corporation fails. 1. Secured creditors, 2. Unsecured creditors, 3. Preferred stockholders, 4. Common stockholders |
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What is convertible preferred stock? What is a stated dividend? |
Preferred stock that can be converted to a fixed number of common shares. The annual dividend received by preferred stock, stated either as a dollar amount or a percentage of the par value. |
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Are preferred stocks riskier to issue than bonds? Why?Are preferred stock riskier to invest in than bonds? Why? |
Preferred stock is less risky to issue than bonds because dividends are not legally required but interest is.Preferred stock is riskier to invest in than bonds because of the lower priorit of payment in the event of bankruptcy. |
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What are three reasons why corporations pay preferred dividends? |
1. The corporation must pay preferred shareholders in order to pay common shareholders 2. Some corporations allow preferred shareholders to vote if they are not paid stated dividends 3. Failure to pay dividends gives the issuer a bad reputation in financial markets |
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How does dividend declaration and payment affect the issuer's books? |
On the date of declaration the issuer accrues a liability and reduces retained earnings. On the date of payment the issuer removes the liability and reduces cash. |
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What is the dividend payout ratio? What does the dividend payout ration imply? |
Dividend / Net Income The percent of profit reinvested in the business, i.e. high dividend payout ratio = low reinvested profits |
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How is the dividend yield calculated? How is market capitalization calculated? |
Annual dividend in dollars / Current market price Current market price * Outstanding shares |
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Define: Under-performance Out-performance Benchmark Index |
The investment did not perform as well as what it's being compared to The investment performed better than what it's being compared to A statistical measure designed to calculate the performance of a financial market or sub-set |
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What do the following indexes measure? S&P 500 Russell 2000 MSCI EAFE Dow Jones Industrial Avg. |
The performance of 500 large U.S. companies' stocks The performance of 2000 small U.S. companies' stocks The performance of developed-country stock in Europe, Australasia, and the Far East The performance of large-cap companies |
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What does the acronym BRICS stand for? Between large- and small-cap markets which is most likely to pay a dividend and which is least likely? Between large- and small-cap markets which is the most risky and which is the least risky? |
Brazil, Russia, India, and China Large-cap markets are most likely to pay a dividend, small-cap markets are least likely to pay a dividend Small-cap markets are the most risky, Large-cap markets are the least risky |
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What is an index fund? What is market/non-diversifiable/systematic risk? |
An index fund invests in the securities of a stated index, i.e. an investment product designed to match the investment performance of that index The risk of trading on a market, market risk impacts all or most investments on the market |
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How is beta interpreted? How is the beta of a portolio calculated? |
Market beta = 1.0 = Beta of the average stock Beta greater than 1 has above average risk Beta less than 1 has below average risk (Beta * percent of portfolio) + (beta * percent of portfolio) ...etc... |
