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167 Cards in this Set
- Front
- Back
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the study of the various forces at work in the marketplace and their effect on stock prices
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Technical Analysis
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a technical approach based on the idea that the market's performance can be described by the long-term price trend in the DJIA, as confirmed by Dow Transportation Average
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Dow Theory
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a ratio of the average yield on high-grade corporate bonds to the average yield on average- or intermediate-grade corporate bonds; a technical indicator based on the theory that market trends usually appear in the bond market before they do in the stock market
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confidence index
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the number of stocks sold short in the market at any given time; a technical indicator believed to indicate future market demand
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short interest
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a technical indicator that uses the amount and type of odd-lot trading as an indicator of the current state of the market and pending changes
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theory of contrary opinion
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analysts who believe it is chiefly (or solely) supply and demand that drive stock prices
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market technicians
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the activity of charting price behavior and other market information and then using the patterns these charts form to make investment decisions
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charting
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the simplest kind of chart, on which share price is plotted on the vertical axis and time on the horizontal axis; stock prices are recorded as vertical bars showing high, low, and closing prices.
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bar chart
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charts used to keep traqck of emerging price patterns by plotting significant price changes with X's and O's but with no time dimension used.
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point-and-figure charts
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a mathematical procedure that computes and records teh average values of a series of prices, or other data, over time; results in a stream of average values that will act to smooth out a series of data
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moving average (MA)
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the theory that stock price movements are unpredictable, so there's no way to know where prices are headed
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random walk hypothesis
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a market in which securities reflect all possible information quickly and accurately
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efficient market
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basic theory of the behavior of efficient markets, in which there are a large number of knowledgeable investors who react quickly to new information, causing securities prices to adjust quickly and accurately.
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efficient markets hypothesis
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form of the EMH holding that past data on stock prices are of no use in predicting future prices
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weak form (EMH)
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form of the EMH holding that abnormally large profits cannot be consistently earned using publicly available information
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semi-strong form (EMH)
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form of the EMH that holds that there is no information, public or private, that allows investors to consistently earn abnormal profits
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strong form (EMH)
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irregularities or deviations from the behavior one would expect in an efficient market
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market anomalies
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the body of research into the role that emotions and other subjective factors play in investment decisions
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behavioral finance
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negotiable, publicly traded long-term debt securities, whereby the issuer agrees to pay a stipulated amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.
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bonds
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feature on a bond that defines the amount of annual interest income
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coupon
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measure of the annual interest income a bond provides relative to its current market price
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current yield
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on a bond, the amount of capital that must be repaid at maturity.
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principal
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the date on which a bond matures and the principal must be repaid
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maturity date
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a bond that has a single, fairly lengthy maturity date
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term bond
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a bond that has a series of different maturity dates
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serial bond
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a debt security originally issued with a maturity of from 2 to 10 years
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note
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a bond with a market value in excess of par; occurs when interest rates drop below the coupon rate
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premium bond
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a bond with a market value lower than par; occurs when market rates are greater than the coupon rate
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discount bond
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feature that specifies whether and under what conditions the issuer can retire a bond prior to maturity
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call feature
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the amount added to a bond's par value and paid to investors when a bond is retired prematurely
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call premium
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the price the issuer must pay to retire a bond prematurely; equal to par value plus the call premium.
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call price
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provisions that prohibit the premature retirement of an issue from the proceeds of a lower-coupon refunding bond
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refunding provisions
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a provision that stipulates the amount of principal that will be retired annually over the life of a bond
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sinking fund
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secured debt obligations, backed by legal claim on specific property of the issuer
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senior bonds
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senior bonds secured by real estate
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mortgage bonds
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senior bonds backed by securities owned by the issuer but held in trust by a third party
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collateral trust bonds
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senior bonds secured by specific pieces of equipment; popular with transportation companies such as airlines
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equipment trust certificates
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bonds secured in part with both first and second mortgages
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first and refunding bonds
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debt obligations backed only by the promise of the issuer to pay interest and principal on a timely basis
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junior bonds
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an unsecured (junior) bond
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debenture
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unsecured bonds requiring that interest be paid only after a specified amount of income is earned
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income bonds
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letter grades that designate investment quality and are assigned to a bond issue by rating agencies
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bond ratings
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different ratings given to a bond issue by two or more rating agencies
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split ratings
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U.S. treasury debt securities that are issued with maturities of 2 to 10 years
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Treasury Notes
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U.S. treasury securities that are issued with 20 and 30 year maturities
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Treasury bonds
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a type of treasury security that provides protection against inflation by adjusting investor returns for the annual rate of inflation
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Treasury Inflation Indexed Obligations (TIPS)
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debt securities issued by various agencies and organizations of the U.S. government
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Agency Bonds
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debt securities issued by states, counties, cities, and other political subdivisions; most of these bonds are tax-exempt (free of federal income tax on interest income).
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Municipal Bonds
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municipal bonds backed by the full faith, credit, and taxing power of the issuer
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general obligation bonds
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municipal bonds that require payment of principal and interest only if sufficient revenue is generated by the issuer
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revenue bonds
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guarantees from a party other than the issuer that principal and interest payments will be made in a prompt and timely manner
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municipal bond guarantees
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the return a fully taxable bond would have to provide to match the after-tax return of a lower-yielding, tax-free municipal bond
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taxable equivalent yield
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bonds with no coupons that are sold at a deep discount from par value
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zero-coupon bonds
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zero-coupon bonds created from U.S. treasury securities
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Treasury Strips (Strip -Ts)
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a debt issue secured by a pool of home mortgages; issued primarily by federal agencies
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mortgage-backed bond
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mortgage- backed bond whose holders are divided into classes based on the length of investment desired; principal is channeled to investors in order of maturity, with short-term classes first
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collateralized mortgage obligation (CMO)
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securities similar to mortgage-backed securities that are backed by a pool of bank loans, leases, and other assets
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asset-backed securities (ABS)
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high-risk securities that have low ratings but high yields
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junk bonds
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a payment-in-kind junk bond that gives the issuer the right to make annual interest payments in new bonds rather than in cash
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PIK-bond
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bonds issued by foreign governments or corporations but denominated in dollars and registered with the SEC
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Yankee bonds
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foreign bonds denominated in dollars but not registered with the SEC, thus restricting sales of new issues
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Eurodollar bonds
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another name for the conversion feature, giving the holder of a claim on the issuer's common stock
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Equity kicker
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securities issued in one form and later redeemed or converted into shares of common stock
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deferred equity
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the calling in of convertible bonds by the issuing firm
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forced conversion
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the conditions and specific nature of the conversion feature on the convertible securities
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conversion privilege
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the time period during which a convertible issue can be converted
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conversion period
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the number of shares of common stock into which a convertible issue can be converted
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conversion ratio
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the stated price per share at which common stock will be delivered to the investor in exchange for a convertible issue
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conversion price
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a zero-coupon bond that carries both a conversion feature and a put option
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LYON (liquid yield option note)
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an indication of what a convertible issue would trade for if it were priced to sell on the basis of its stock value
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conversion value
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the price at which the common stock would have to sell in order to make the convertible security worth its present market price
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conversion equivalent (conversion parity)
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the length of time it takes for the buyer of a convertible to recover the conversion premium from the extra current income earned on the convertible
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payback period
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the price at which a convertible would trade if it were nonconvertible and priced at or near the prevailing market yields of comparable nonconvertible issues
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investment value
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differences in interest rates that exist among various sectors of the market
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yield spreads
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the relationship between the interest rate or rate of return (yield) on a bond and its time to maturity
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term structure of interest rates
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a graph that represents the relationship between a bond's term to maturity and its yield at a given point in time
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yield curve
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theory that the shape of the yield curve reflects investor expectations of future interest rates
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expectations hypothesis
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theory that investors tend to prefer the greater liquidity of short term securities and therefore require a premium to invest in long term securities
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liquidity preference theory
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theory that the market for debt is segmented on teh basis of maturity, that supply and demand within each segment determine the prevailing interest rate, and that the slope of the yield curve depends on the relationship between the prevailing rates in each segment
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market segmentation theory
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measure that indicates the amount of current income a bond provides relative to its market price
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current yield
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the fully compounded rate of return earned bu an investor over the life of a bond, including interest income and price appreciation
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yield-to-maturity (YTM)
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yield-to-maturity
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promised yield
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the annual yield on a bond calculated as twice the semiannual yield
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bond-equivalent yield
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the yield on a bond if it remains outstanding only until a specified call date
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yield-to-call (ytc)
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the rate of return an investor can expect to earn by holding a bond over a period of time that's less than the life of the issue
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expected return
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expected return
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realized yield
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a measure of bond price volatility, which captures both price and reinvestment risks and which is used to indicate how a bond will react in different rate environments
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duration
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bond portfolio strategy that uses duration to offset price and reinvestment effects; a bond portfolio is immunized when its average duration equals the investment horizon
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immunization
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an investment strategy wherein equal amounts of money are invested in a series of bonds with staggered maturities
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bond ladders
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an investment strategy wherein an investor simultaneously liquidates one bond holding and buys a different issue to take its place
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bond swap
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replacement of a low-coupon bond for a comparable higher coupon bond in order to realize an increase in current yield and yield to maturity
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yield pickup swap
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replacement of a bond that has a capital loss for a similar security; used to offset a gain generated in another part of an investor's portfolio
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tax swap
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an investment company that invests its shareholders' money in a diversified portfolio of securities.
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Mutual Fund
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a process whereby investors buy into a diversified portfolio of securities for the collective benefit of the individual investors
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pooled diversification
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a fee levied annually for professional mutual fund services provided; paid regardless of the performance of the portfolio
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management fee
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a type of investment company in which investors buy shares from, and sell them back to, the mutual fund itself, with no limit on the number of shares the fund can issue
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open-end investment company
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the underlying value of a share of stock in a particular mutual fund
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net asset value (NAV)
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a type of investment company that operates with a fixed number of shares outstanding
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closed-end investment companies
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an open-end mutual fund that trades as a listed security on a stock exchange
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exchange-traded fund (ETF)
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a mutual fund that charges a commission when shares are bought; also known as a front-end load fund
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load fund
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a mutual fund that does not charge a commission when shares are bought
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no-load fund
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a mutual fund that charges a small commission (2% to 3%) when shares are bought
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low-load fund
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a commission charged on the sale of shares in a mutual fund
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back-end load
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a fee levied annually by many mutual funds to cover management and other operating costs; amounts to as much as 1% of the average net assets
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12(b)-1 fee
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a type of closed-end investment company that sells shares to investors and invests the proceeds in various types of real estate and real estate mortgages; they come in three types: equity REIT's, mortgage REIT's, and hybrid REIT's
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Real estate investment trust (REIT)
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a type of unregulated investment vehicle that invests money for a very select group of institutional and high-net-worth individual investors; the investment objectives usually are to not only preserve capital, but also deliver positive returns in all market conditions
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hedge fund
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a mutual fund whose primary goals are capital gains and long-term growth
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growth fund
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a highly speculative mutual fund that seeks large profits from capital gains
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aggressive-growth fund
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a mutual fund that seeks stocks that are undervalued in the market by investing in shares that have low P/E multiples, high dividend yields, and promising futures
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value fund
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a mutual fund that emphasizes current income and capital preservation and invests primarily in high-yielding common stocks
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equity-income fund
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a mutual fund whose objective is to generate a balanced return of both current income and long-term capital gains
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balanced fund
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a mutual fund that seeks both long-term growth and current income, with primary emphasis on capital gains
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growth-and-income fund
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a mutual fund that invests in various kinds and grades of bonds, with income as the primary objective
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bond fund
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a mutual fund that pools the capital of investors and uses it to invest in short-term money market instruments
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money market mutual fund (money fund)
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a mutual fund that buys and holds a portfolio of stocks (or bonds) equivalent to those in a specific market index
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index fund
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a mutual fund that restricts its investments to a particular segment of the market
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sector fund
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a mutual fund that actively and directly incorporates ethics and morality into the investment decision
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socially responsible fund
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a mutual fund that spreads investors' money across stocks, bonds, money market securities, and possibly other asset classes
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asset allocation fund
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a mutual fund that does all or most of its investing in foreign securities
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international fund
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a mutual fund service that allows shareholders to automatically send fixed amounts of moeny from their paychecks or bank accounts into the fund
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automatic investment plan
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a mutual fund service that enables shareholders to automatically buy additional shares in the fund through the reinvestment of dividends and capital gains income.
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automatic reinvestment plan
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a mutual fund service that enables shareholders to automatically receive a predetermined amount of money every month or quarter.
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systematic withdrawal plan
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feature of a mutual fund that allows shareholders to move money money from one fund to another, within the same family of funds
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conversion (exchange) privilege
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different kinds of mutual funds offered by a single investment management company
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fund families
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income derived from the dividends and interest earned on the security holdings of a mutual fund.
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dividend income
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payments made to mutual fund shareholders that come from the profits that a fund makes from the sale of its securities
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capital gains distributions
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a capital gain made only "on paper" - that is, not realized until the fund's holdings are sold
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unrealized capital gains (paper profits)
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a scheme that involves dividing one's portfolio into various asset classes to preserve capital by protecting against negative developments while taking advantage of positive ones
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asset allocation
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the procedures used to select the specific securities to be held within an asset class
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security selection
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asset allocation plan in which a fixed percentage of the portfolio is allocated to each asset category
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fixed-weightings approach
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asset allocation plan in which weights for each asset category are adjusted periodically based on market analysis
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flexible-weightings approach
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asset allocation plan that uses stock-index futures and bond futures to change a portfolio's asset allocation based on forecast market behavior
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tactical asset allocation
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a mutual fund that seeks to reduce the variability of returns by investing in the right assets at the right time, emphasizes diversification and performs at a relatively consistent level by passing up the protential for spectacular gains in favor of predictability
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asset allocation fund
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building a portfolio using traditional and modern approaches and managing and controlling it to achieve its objectives; a worthwhile activity that can result in superior returns
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active portfolio management
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a measure of portfolio performance that measures the risk premium per unit of total risk, which is measured by the portfolio standard deviation of return
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Sharpe's measure
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a measure of portfolio performance that measures the risk premium per unit of nondiversifiable risk, which is measured by the portfolio beta.
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Treynor's measure
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a measure of portfolio performance that uses the portfolio beta and CAPM to calculate its excess return, which may be positive, zero, or negative
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Jensen's measure (Jensen's alpha)
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the process of selling certain issues in a portfolio and purchasing new ones to replace them
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portfolio revision
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mechanical methods of portfolio management that try to take advantage of price changes that result from cyclical price movements
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formula plans
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a formula plan for timing investment transactions, in which a fixed dollar amount is invested in a security at fixed time intervals
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dollar-cost averaging
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a formula plan for timing investment transactions, in which the investor establishes a target dollar amount for the speculative portion of the portfolio and establishes trigger points at which funds are transferred to or from the conservative portion as needed to maintain the target dollar amount
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constant-dollar plan
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a formula plan for timing investment transactions, in which a desired fixed ratio of the speculative portion to the portfolio is established; when the actual ratio differs by a predetermined amount from the desired ratio, transactions are made to rebalance the portfolio to achieve the desired ratio
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constant-ratio plan
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a formula plan for timing investment transactions, in which the ratio of the speculative portion to the total portfolio value varies depending ont he movement in the value of the speculative securities; when the ratio rises or falls by a predetermined amount, teh amount committed to the speculative portion of the portfolio is reduced or increased, respectively.
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variable-ratio plan
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the situation where a stock temporarily drops in price and then bounces back upward
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whipsawing
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a security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time
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option
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a negotiable instrument that enables the holder to sell the underlying security at a specified price over a set period of time
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put
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a negotiable instrument that gives the holder the right to buy securities at a stated price within a certain time period
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call
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securities, such as puts, calls, and other options, that derive their value from the price behavior of an underlying real or financial asset.
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derivative securities
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the ability to obtain a given equity position at a reduced capital investment, thereby magnifying returns
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leverage
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the individual or institution that writes/creates put and call option
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option maker (writer)
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put and call options sold over the counter
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conventional options
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put and call options listed and traded on organized securities exchanges, such as the CBOE
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listed options
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the stated price at which you can buy a security with a call or sell a security with a put
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strike price
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the date at which an option expires
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expiration date
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a call option with a strike price less than the market price of the underlying security; a put option whose strike price is greater than the market price of the underlying security.
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in the money
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a call option with no real value because the strike price exceeds the market price of the stock; a put option whose market price exceeds the strike price
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out of the money
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the quoted price the investor pays to buy a listed put or call option
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option premium
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the amount by which the option price exceeds the option's fundamental value
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time premium
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a combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk
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hedge
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options written on securities not owned by the writer
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naked options
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options written against stock owned (or short sold) by the writer
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covered options
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combining two or more options with different strike prices and/or expiration dates into a single transaction
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option spreading
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the simultaneous purchase (or sale) of a put and a call on the same underlying common stock (or financial asset).
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option straddle
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a put or call option written on a specific stock market index, such as the S&P 500.
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Stock-index option
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put and call options written on fixed-income (debt) securities
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interest rate options
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put and call options written on foreign currencies
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currency options
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long-term options
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LEAPS
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