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45 Cards in this Set
- Front
- Back
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What are the two types of investments?
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1. Securities
2. Stock |
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What are securities?
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Investments such as stocks, bonds, options, futures, and commodities.
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What is stock?
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-Ownership of or equity in a company
-A share of stock represents a specific portion of ownership |
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What are the 2 types of stock?
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1. Common Stock
2. Preferred Stock |
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What is common stock?
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Shares of ownership that include voting rights
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What does preferred stock differ from common stock?
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-Does not include voting rights
-Receive dividends -May be converted into common stock -More like debt than equity -Higher legal "priority" than common stock (should the company go bankrupt, investors with preferred stock will get paid first) -Less risky |
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What are the 4 categories of stock valuation?
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1. Par Value
2. Book Value 3. Market Value 4. Intrinsic Value |
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What is Par Value?
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The value assigned when the stock is first issued
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What is Book Value?
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The difference between the assets and liabilities as listed on the balance sheet
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What is Market Value?
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The price at which the stock is actually selling in the stock market
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What is Intrinsic Value?
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An estimate of what a company is actually worth, independent of book and market values
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What are the 7 investment categories of common stock?
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1. Blue chip
2. Income 3. Growth 4. Cyclical 5. Defensive or counter-cyclical 6. Large cap, mid cap, small cap 7. Penny stock |
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What is a blue chip stock?
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Stocks of major, well-established corporations with demonstrated ability to manage their way through every kind of economic condition
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What is an income stock?
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Stocks purchased primarily for dividend payouts rather than capital gains potential; companies tend to be older, stable firms with fairly predictable profits but lower prospects for growth
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What is a growth stock?
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Stocks from rapidly growing companies that usually reinvest profits (to keep growing) rather than paying dividends; investors buy these stocks for potential capital gains, not income; companies tend to be smaller and younger, and many are in the technology sector
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What is a cyclical stock?
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Stocks from companies whose earnings tend to track the ups and downs of the economy in a predictable pattern; many of these companies are in basic industries such as housing and transportation
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What are defensive or counter-cyclical stocks?
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Stocks of companies that tend to fare better when the economy is doing worse and vice versa; for example, new car sales decline in a falling economy but car repair businesses usually increase revenue as people try to hang onto their automobiles longer
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What are large cap, mid cap, and small cap stocks?
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General designations for the size of a company's market capitalization (the market value of its stock multiplied by the number of shares in circulation); small caps tend to be higher-risk, higher-reward than large caps, with mid caps somewhere in between
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What are penny stocks?
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Stocks that sell for less than one dollar per share or that are highly speculative (risky, but with upside potential); tend to be from newer companies or established companies whose stock has plummeted for some reason
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What is short selling?
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Betting that the price of a stock will go down in the future
-Borrow stock from a broker -Sell the borrowed stock -Buy the stock back at future date (hopefully, the stock price has gone down) -Repay the broker -Enjoy the profit |
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What are the 3 investment features of bonds?
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1. Face Value
-The amount of money, or principal, a bond buyer lends to a bond issuer; also known as par value or denomination 2. Maturity Date -The date on which the principal of a bond will be repaid in full 3. Yield -Interest income a purchaser receives from the bond |
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What are 3 advantages of bonds?
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1. Most bonds are less risky than stocks and many other investments
2. Bonds offer lower volatility (price fluctuations) than stocks 3. Corporate bonds with twice-yearly interest payments can provide a regular source of income |
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What are investment portfolios?
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Collections of various types of investments
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What is asset allocation?
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-Management of a portfolio to balance potential returns with an acceptable level of risk
-There is a tradeoff between returns and risk |
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What is portfolio diversification?
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Spreading investments across enough different vehicles to protect against significant declines in any one vehicle
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What are mutual funds?
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Financial instruments that pool money from many investors to buy a diversified mix of stocks, bonds, or other securities
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What are the 3 advantages of mutual funds?
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1. Diversification
2. Professional Management 3. Simplified decision making |
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What is an expense ratio?
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The annual cost of owning a mutual fund, expressed as a percentage
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What are load funds?
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-The sales commission charged when buying or selling a mutual fund
-Also charge an annual fee based on the net asset value (fund assets - fund liabilities) of the fund -fee is a percent of NAV (up to 1%) |
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What are no-load funds?
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-Mutual funds that do not charge loads
-Do charge a smaller annual fee based on the fund's NAV |
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What are exchange traded funds?
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Mutual funds whose shares are traded on public exchanges in the same way as stocks
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What are the 10 categories of mutual funds?
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1. Money-market
2. Growth 3. Value 4. Income 5. Balanced 6. Sector 7. Target-date 8. Global 9. International 10. Socially-responsible |
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What are money-market mutual funds?
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Invest in high-quality, short-term debt issues from governments and corporations
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What are growth mutual funds?
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Invest in stocks of rapidly growing companies
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What are value mutual funds?
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Invest in stocks considered to be selling below their true value
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What are income funds?
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Invest in securities that pay high dividends and interest
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What are balanced funds?
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Invest in a combination of stocks and bonds
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What are sector funds?
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Invest in companies in a particular industry
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What are target-date funds?
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Attempt to maintain a desirable balance of risk and growth potential based on a target retirement date
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What are global funds?
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Invest in foreign and U.S. securities
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What are international funds?
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Invest strictly in foreign securities
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What are socially responsible funds?
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Make investment choices based on criteria related to corporate social responsibility
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What are stock exchanges?
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Organizations that facilitate the buying and selling of stock
-New York Stock Exchange -NASDAQ -Tokyo Stock Exchange -London Stock Exchange -Shanghai Stock Exchange |
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What is the bond market?
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The collective buying and selling of bonds
Most bond trading is done over the counter, rather than in organized exchanges |
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What are good questions to ask when you are trying to establish your investment objectives?
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-Why do you want to get more money?
-How much will you need and when? -How much can you invest? -How much risk are you willing to accept? -How much liquidity do you need? -What are the tax consequences? |
