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54 Cards in this Set

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Common Stock

-corporate ownership


-may pay dividends


-voting rights


-capital appreciation

Preferred Stock

-Pays fixed dividend


-receives dividends before common


-no voting rights


-inflation risk, interest rate risk


-income

Growth stock

-more volatile


-little to no dividends


-long term growth, retirement savings, hedge against inflation

Utility Stock

Company has stable earnings and the stock is less risky than most stocks


-high dividend payout


-stable income

American Depository Receipt

A receipt of ownership in a foreign corporation


-US market and US dollars


-SEC registered


Market, exchange rate risk


-MAY pay dividends

Bond

-stable interest income


-conservative


-inflation risk, interest rate risk, default risk, reinvestment risk


-longer maturity = more risk

Corporate Bond

-secured or unsecured


-fixed and fully taxable interest


-current income for Specific period

Convertible Bond

-convertible into fixed number of common shares


-lower interest rate


-income with potential for long term growth

Zero Coupon Bond

-issued at deep discount


-matures at par value


-accretion treated as interest


-interest rate and inflation risk

High Yield Bond

Also called junk bonds


-high risk with speculative rating


-higher coupon

Money Market Instruments

Short term debt, low yields


-very save and liquid

Municipal Bond

-pays federally tax exempt interest


-GO bonds have less credit risk


-revenue bonds


-lower coupon than corporate bond

Private Activity/ Industrial Development Bond

Issued by municipalities


-proceeds benefit private party or corp


-Rated based on entity/corp


-higher yielding muni

Municipal Note

-Safe and liquid short term muni


-Typically money market


-Fed tax exempt


-Low yield


-RAN, TAN, BAN, GAN

Variable Rate Demand Obligation (VRDO)

-Long term debt with short term trading features


-Lower yield, greater liquidity


-Interest rate reset periodically


-Investor may put bond to issuer at reset

Treasury Note

-Semiannual interest


-Mature in 2-10 years


-Quoted in 32nds


-interest exempt from state/local tax

Treasury Bond

-Semiannual interest


-Mature in over 10 years


-Quoted in 32nds


-interest exempt from state/local tax

Treasury Bill

-Short term and liquid


-Safe investment with low yield


-Maturities up to 1 year


-No interest

Treasury Inflation Protected Security (TIPS)

-Conservative long term income investment


-Low fixed rate interest


-Adjusted for inflation


-Not growth oriented

Treasury STRIPS

Safe and conservative investment created from t notes and t bonds that had interest and principal payments separated and resold as 0 coupon securities


-pays fixed lump sum at maturity


-maturities 2-20 years


-subject to inflation risk

Government agency mortgage backed securities

Debt certificates that make fully taxable monthly payments of principal and interest derived from residential mortgage payments


-federal or govt-sponsored


-prepayment risk

Collateralized Mortgage Obligation (CMO)

-Privately issued mortgage-backed bond


-Uses principal and interest collected on mortgages to fund bond classes (tranches)


-Monthly income

Planned Amortization Class (PAC)

A CMO tranche that provides investors with the most predictable payments

Support/companion Tranche

CMO tranche which has the most prepayment risk, variability in payments, and unpredictable maturity

Z Tranche

-last CMO tranche to be paid


-receives no payments until all other tranches are paid off

Long Options (buying calls/puts)

-Allows investors to speculate on price movement of stocks without buying shares outright


-short term and may expire worthless

Short options (selling calls and puts)

-Seller accepts potential future obligation in exchange for premium paid


-Potential future loss may be unlimitied

Long straddle/combination

-Buying both a call and a put on the same stock to speculate on volatility


-Loss of combined premiums occurs if price remains stable



-Straddle= same stock, exp, strike price


-Combination= same stock, different exp and/or struck price

Short straddle/combination

-Selling a call/put on the same stock to generate combined income on premiums


-Straddle=same stock, expiration, strike


-Combo=same stock, diff exp/strike


-Possible unlimited future loss

Debit spreads

The sale and purchase of the same type of option on the same stock


-the premium paid us greater than the premium received (net debit)


-net premium is maximum loss, Max gain is difference in strike prices minus the net premium

Credit spreads

Sale and purchase of the same type of option on the same stock


-premium received is greater than the premium paid


-net premium is sellers Max gain , Max loss is difference in strike prices minus net premium

Protective put

A put purchased on a long stock position used to hedge the downside risk of the stock

Covered call

A call sold against a long stock position, generates income (premium) and lowers the cost of the stock by the premium received


-limited upside potential

Protective call

A call purchased to hedge a short stock position


-used to hedge the upside risks of the stock position

Covered put

The sale of a put against a short stock position


-generates income, but limits potential gains

Direct participation program (DPP) limited partnership

-distributes passive income and passive losses to partners


-tax deductions/credits


-limited liability


-illiquid, subject to tax law changes

Mutual Fund

Offers shares of a portfolio that is diversified based in the type of fund


-less risky than buying individual securities


-redeem shares at NAV

Growth fund

-managed portfolio consisting of common stocks with strong upside potential


-little to no dividends

Income fund

A managed portfolio that primarily consists of bonds, preferred stocks, and possibly high dividend paying common stocks


-investors seeking current income

Specialized/sector fund

A managed portfolio that invests in one specific industry or geographic area


-least diversified fund


-higher risk, higher potential returns

Balanced fund

A diversified and managed portfolio that consists of both stocks and bonds


-provides growth and current income

International stock fund

A managed portfolio that consists of stocks of foreign corporations


-priced in US dollars


-provides diversity

Index fund

A passively managed fund that buys and holds securities that mirror a specific index (ex. The S&P 500)

Exchange traded fund (ETF)

Offers shares that track an index and trade in the secondary market like common stock


-unlike mutual funds, shares are priced and traded in real time

Exchange traded note

Similar to an ETF, but considered unsecured debt. Subject to default risk


-often tracks the performance of an exotic mix of assets

Closed end fund

Issues a limited number of shares which are priced and traded in real time. Share price based on supply and demand, not NAV

Business development company (BDC)

An unregistered closed end investment that invests in developing companies


-more volatile than mutual fund, high potential rewards

Real estate investment trust (REIT)

Portfolio consisting of income producing properties and/or mortgages


-distributes 90% net income to investors, does NOT distribute losses


-divs taxed as ordinary income


-NOT an investment company

Hedge Fund

A private investment fund that is not an investment company. May use exotic strategies like short selling, leverage, derivatives, ILLIQUID

Variable annuity

An investment contract with an insurance company. Risk is assumed by annuitant


-can be set up to provide periodic payments for life


-income grows tax-deferred

Fixed annuity

An investment contract with an insurance company, risk assumed by company.


-may provide fixed payments for life


-income grows tax-deferred


-investment returns at fixed rate

ROTH IRA

Tax free investment account available to persons with earned income. Qualified withdrawals are tax free

Coverdell education savings account

A tax free investment account established to help pay a child's education expenses


-withdrawals are tax free if used for qualified education expenses

529 College Savings Plan

A tax free investment account established to help pay higher education expenses


-no income limit


-withdrawals are tax free if the funds are used for qualified higher education expenses