Intro To Business Chapter 16

Front 1

securities

Back 1

investment instruments such as bonds (debt) or stock (equity)

Front 2

bonds

Back 2

debt instruments issued by companies or governments with the purpose of raising capital to finance a large projects. bond holders have no ownership of company

Front 3

Financing with bonds

Back 3

-Project returns should be greater than the cost of bond financing
-The rate of interest the company pays is affected by:
-issuer risk
-The length of the bond term
-The general state of the economy
-Bond debt is paid back with interest annually and principal at maturation
-Bond financing advantages
-uses money from investors, not company profits
-doesn't give up any

Front 4

sinking fund

Back 4

type of savings fund into which companies deposit money regularly to help repay a bond issue

Front 5

equity

Back 5

money that is receive in exchange for ownership in a business

Front 6

stock

Back 6

unit of ownership in a company that is sold with the intention of raising capital to finance ongoing or future projects and expansions

Front 7

stock certificate

Back 7

represents stock ownership and includes details of the stock issue, such as the company name, the number of shares, and type of stock

Front 8

dividends

Back 8

payment made from a portion of a company's profit to shareholders

Front 9

advantage and disadvantage with financing with stocks

Back 9

-Stock advantages
-Equity financing doesn’t need to be repaid
-no interest and principal payments needed
-Disadvantages
-dilution of ownership
-potential dividend payment

Front 10

financial advisory firm

Back 10

serves as an intermediary between a company issuing the bonds and the investors who purchase the bonds

Front 11

Securities and Exchange Commission (SEC)

Back 11

federal agency that regulates and governs the securities industry

Front 12

capital market

Back 12

an arena where companies and governments raise long-term funds by selling stocks and bonds and other securities

Front 13

primary market

Back 13

part of the capital market that deals specifically with new bond and stock issues

Front 14

initial public offering (IPO)

Back 14

first sale of stock to the public by a company

Front 15

prospectus

Back 15

formal legal document that provides details about an investment

Front 16

secondary market

Back 16

market in which investors purchase securities from other investors rather than directly from an isuing company

Front 17

risk-return relationship

Back 17

least risky investments offer lowest amount of return and vise versa

Front 18

diversification

Back 18

having a variety of investments in your portfolio, such as different types of companies in different industries

Front 19

asset allocation

Back 19

suggest that you structure your portfolio with different types of assets (stocks, bonds, mutual funds, real estate, etc.) to reduce the risks associated with these broad types of investments

Front 20

insider trading

Back 20

buying and selling of securities based on information that has not been disclosed to the public

Front 21

common stock

Back 21

ordinary stock. common stockholders have the right to elect a board of directors and vote on corporate policy.

Front 22

preferred stock

Back 22

class of ownership in which the preferred stockholders have a claim to assets before common stockholders if a firm goes out of business. however they do not have voting privelages

Front 23

income stocks

Back 23

issued by companies that pay large dividends

Front 24

blue chip stocks

Back 24

issued by companies that have a long history of consistent growth and stability. holders pay regular dividends

Front 25

growth stocks

Back 25

issued by young, entrepreneurial companies that are experiencing rapid growth and expansion. holders pay little or no dividends

Front 26

cyclical stocks

Back 26

issued by companies that produce goods or services that are affected by economic trends

Front 27

defensive stocks

Back 27

opposite of cyclical stocks. issued by companies producing staples such as food, drugs, and insurance

Front 28

stockbroker

Back 28

professional who buys and sells securities on behalf of investors

Front 29

stock exchange

Back 29

an organization that facilitates the exchange of stocks and other securities between brokers and traders

Front 30

New York Stock Exchange (NYSE) and American Stock Exchange (AMEX)

Back 30

stocks are bought and sold on a trading floor or via an electronic market

Front 31

NASDAQ

Back 31

where stocks are only traded via an electronic market

Front 32

over-the-counter (OTC) stocks

Back 32

securities traded between professionals over computer networks or by phone

Front 33

bull market

Back 33

increasing investor confidence as the market continues to increase in value

Front 34

bear market

Back 34

indicates decreasing investor confidence as the market continues to decline in value

Front 35

index

Back 35

a collection of related stocks based on certain shared characteristics, such as having a similar size, belonging to a common industry, or trading on the same market exchange

Front 36

capital gain

Back 36

buy low and sell high. buy stock at one price and wait for stock to appreciate and then sell stock

Front 37

capital loss

Back 37

decrease in value between the purchase price and the selling price

Front 38

corporate bonds
two types:
-secured bonds-
-debenture bonds-
-convertible bond-

Back 38

debt securities issued by corporations

-secured bonds-backed by collateral
-debenture bonds-unsecured bonds, backed by corporation's promise to pay
-convertible bond-gives a bondholder the right to convert the bond into a predetermined number of shares of the company's stock

Front 39

government bonds:
-treasury bills
-treasury notes
-treasury bonds

Back 39

debt securities issued by national governments
-treasury bills- bonds that mature between 2 weeks and 26 weeks. no interest paid
-treasury notes-bonds that mature in 2,5, or 10 years. interest is paid semiannually
-treasury bonds- bonds that mature in 30 years and pay interest semiannually

Front 40

municipal bonds
two types:
-general obligation bonds
-revenue bonds-

Back 40

bonds issued by state or local governments or governmental agencies
-general obligation bonds-supported by the taxing power of the issuer
-revenue bonds-supported by the income generated by the project they finance

Front 41

serial bonds

Back 41

have a series of dates on which portions of the total bond mature, unlike traditional bonds that are paid back to the investor all at once on one date

Front 42

callable bonds

Back 42

issuer can either repay investors their initial investment at the maturity date or the issuer can choose to retire the issue early and repay investors at the "callable date"

Front 43

junk bonds

Back 43

bonds with lowest ratings and most risks

Front 44

Par (face) value

Back 44

amount of money the bondholder will get back once a bond reaches maturity

Front 45

coupon

Back 45

bond's interest rate

Front 46

maturity date

Back 46

the date on which the bond matures and the investor's principal is repaid

Front 47

mutual fund-
bond mutual funds-
money market funds-

Back 47

mutual fund-means by which group of investors pool money together to invest in a diversified set of investments
bond mutual funds-consists solely of bonds
money market funds-funds that invest in short-term debt obligations, such as Treasury bills and CDs

Front 48

reasons why you should invest in mutual funds:

Back 48

-diversification
-professional management-
-liquidityeasy to buy and sell mutual funds
-cost-inexpensive

Front 49

net asset value (NAV)

Back 49

value of the individual mutual fund holdings

Front 50

load funds

Back 50

additional costs of a mutual fund

Front 51

no-load fund

Back 51

a mutual fund that has little or no additional cost

Front 52

option

Back 52

contract that gives a buyer the right to buy or sell a particular security at a specific price on or before a certain date

Front 53

futures contract

Back 53

agreement between a buyer and a seller to receive an asset sometime in the future at a specific price agreed on today.

Front 54

exchange-traded funds (ETFs)

Back 54

pool of stocks like a mutual fund, but trades like stocks on the exchange