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35 Cards in this Set

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Stockholders can earn money in two ways...

Dividends = income and capitol gains

Common stock

Owners receive voting privileges and no guarantee of dividends

Preferred stock

Extremely limited voting rights, receive guarantee dividends, and in the event of business failure, owners receive assets before common stock holders

Stock split

Number of shares owned typically doubles after this while value of each share cuts in half

Bondholders receive...

Interest payments

_____ represent a loan to the issuing entity

Bonds

Two types of bonds

Government and corporate

Mutual funds

Contain a number of securities (stocks and bonds) that have been selected by a professional

Diversification

The process of spreading your assets among several different types of investments to reduce risk

Private corporations

Issues shares to a small group of people and are not traded openly in financial markets

Public corporations

Sell shares openly in a financial market where anyone can buy them

Capitalization

Total amount of securities issued by a corporation

Blue chip stocks

Considered safe investments that usually attract conservative investors

Blue chip stocks are issues by companies who are...

Strong and respected, known for stable earnings, and consistently paying dividends

Income stocks

Known for paying regular, often steadily, increasing dividends compared to other stocks

Growth stocks

Predicted earnings may be higher than that of other companies

Growth stocks

Generally do not pay dividends

Which stock uses retained earnings?

Growth stocks

Growth stock profits...

Generally used to expand the business, build new facilities, etc.

Cyclical stocks

Stocks whose market value tends to reflect the state of the economy

Examples of cyclical

Car manufacturer, airlines, furniture retailers

Defensive stock

Stocks that remains stable during economic decline and has steady earnings to continue paying dividends

Defensive stocks...

Perform better than the overall market during economic declines and performs below overall market during expansion

Large cap stocks

Market capitalization of $10 billion or more

Small cap stocks

Less than 2 billion although often measured in millions

Mid cap stock

$2-10 billion

Penny stocks

SEC defines as a security that trades for less than $5 per share

Penny stocks are not...

Listed on a national exchange

Penny stocks are

Considered risky and suspectable to fraudulent scams

Bull market

Optimism and increased buying of stocks

Bear market

General decline of stock market, widespread fear and pessimism, typically an overall price decline of 20% or more over a two month period

Primary market

Purchased through a corporate representative or an investment bank

Secondary market

Investors trading their shares as securities

Corporate bond

Written pledge to repay a bondholder a specified amount of money plus interest

Types of corporate bonds

Mortgage, debentures, subordinated debentures, and convertible bonds