Finance Final Exam

Front 1

Returns from shares of stock come in the form of ______ and ______.

Back 1

Capital appreciation and dividends.

Front 2

Fundamental Analysis

Back 2

The approach to stock valuation that involves examining future earnings and dividends, the expected level of interest rates, and the firms risk to provide a basis for buy-sell recommendations.

Front 3

"Bear Market"

Back 3

A market in which prices are falling, encouraging selling.

Front 4

Systematic Risk

Back 4

Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security.

Front 5

Claims on Assets

Back 5

If a company you have invested in goes bankrupt, the creditors are paid first and the investors are out of luck.

Front 6

"Timing the market"

Back 6

The act of attempting to predict the future direction of the market, typically through the use of technical indicators or economic data. NOT easily done.

Front 7

Dividends

Back 7

A distribution or portion of a company's earnings. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

Front 8

Capital Appreciation

Back 8

A rise in the value of an asset based on a rise in market price.

Front 9

Call Risk

Back 9

The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate).

Front 10

Treasury Inflation Protected Securities (TIPS)

Back 10

A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. Considered risk-free due to the govt's ability to tax and print more money.

Front 11

Debenture

Back 11

An unsecured long-term bond

Front 12

Indenture

Back 12

A legal document that provides the specific terms of the loan agreement, including a description of the bond, as well as the rights of the bondholder.

Front 13

Zero Coupon Bond

Back 13

A bond that does not pay any interest, and instead sold at a "discount" from its maturity value.

Front 14

General Classifications of Common Stock

Back 14

Blue-Chip Stocks
Growth Stocks
Income Stocks
Speculative Stocks
Cyclical Stocks - aggressive, depends on risk.
Defensive Stocks - depends on risk.

Front 15

Technical Analysis

Back 15

Focuses on supply and demand, using charts and computer programs to identify and project price trends for a stock or for the market as a whole.