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Investment current commitment of funds with the expectation of a future return. Aquistion of an asset such as a stock or a bond
Recession 2 consecutive quarters (3 month period) of negative GDP growth; = economic shrinkage
Current GDP growth (US) 2%
Dec 1/2 , Jan ½, (Feb) unemployment 7.8%
Gross Domestic Product (GDP) sum Total of all Final goods & services produced in a country w/in a yr
In 2011 US’s GDP 15.1 trillion
Top 5 economies 1.USA 2.China 3. India 4.Japan 5.Germany
Top 3 decision makers (the spenders) Households 70%, Firms, Gov’t
Market where buyers & sellers come together
2 types of Financial markets 1.Money markets (short term 1 yr) 2.Capital mrkts (long-term)—stocks & bonds
Securities are issued on which 2 types o markets? primary- initial sale of securities; brand new secs (IPO). 2ndry- “used secs”- mrkt for buying and selling previously issue secs; trading amongst themselves investors r
Financial intermediary: what? Who 3? a fin institution (1bank, 2,pension fund, 3insurance) that borrows from one group and lends to another
Stocks Ownership dividends- Equity stake of its owners
Bonds lending—contract…interest- Debt security
2 Qs to concern self w/-- return how much? How long?
Portfolio collection o financial assets—an accumulation of assets owned by the investor designed to transfer purchasing power to the future
What’s in your portfolio depends on what 4 factors? 1.time 2.risk tolerance 3.tax situation/bracket 4.knowledge
Risk uncertainty that my expected return will be realized; the possibility of loss; UnCertainty of future returns
Indirect investment saver of funds goes through financial intermediaries to lend money to user of funds
What r 3 financial intermediary banks, insrance, pension funds
Fed Reserve Chairman Ben Bernanke
Marketability Salable (can sell it)- whether can b brought or sold; the ease with which an asst may be bought and sold
Liquidity ease with which assets can b converted into cash; can Sell it w/out loss of principle ($)— Ease of buy or sell—how fast that sale can occur @ the current price—cash out in a very shrt time? liquid
Real vs Fin assets tangible vs. stocks & bonds
2 ways to rank companies by Sales/revenues, by Market value/capitalization
Market val/capitalization # of shrs outstanding x Price of shares stock; tot mrkt value of company; the total value of the issued shares of a publicly traded company
Large cap stock = 10 bill+
Small cap = 1 bill-
Short-term money market instruments treasury bills, commercial paper, bank CD’s (cert. of deposit)
treasury bills: what, maturity, smallest (FV), liquidity, discounted, interest? US issued; maturity 3, 6,12 months; Future value of smallest $10,000, extremely liquid; usually sold @ a discount from FV; no interest
commercial paper: what, maturity, smallest FV, liquidity, discounted, interest? corporate IOU- i.e. lends to company; max. 270 days maturity; smallest can buy $25,000 FV; discounted from FV; no secondary mrkt- a lil less liquid; no interest
bank CD’s (cert. of deposit): what, maturity, smallest FV, discounted, interest? Jumbo CD’s; min values $100,000 FV; 3 months to 2 years maturity; no discount; get interest payments
Organized exchanges securities marketplace where purchasers and sellers regularly gather to trade securities according to the Formal rules adopted by the exchange; Located in Geographical area. NYSE, AMEX
Specialist dealr on NY stock xchange
Over-the-counter (OTC) mrkt; for example? informal 2ndary mrkt for unlisted secs; NASDAQ
Dealers Market Makers who buy and sell securities for their Own Accts. Inventory
Bid dealer’s offer (to buy from you) price
Ask dealer Sell to you price
Spread the difference btw the bid and ask prices
Broker agent who handles buy and sell orders for an investor; paperwork; no ownership
Buying on margin using borrowed $ to buy stocks- in street name; secs serve as collateral for loan
Margin- what’s its equation? the AmoUnt that an investor must put down to buy securities on credit; = customer equity/value of security. (not what u borrow!) nts wk 2.4
margin requirement the min %age, established by the Fed reserve, that the investor must put up in cash to buy securities; value of sec x margin req = min payment req. of investr
maintenance margin the min Equity required for a margin account ie b4 u get a margin call
Margin call if collateral (equity) fall below a specified level (maintenance), broker calls investor to put in more assets or she’ll sell
What price (p) triggers a margin call? p = $ borrowed per share/(1-Maint. Margin) or $ borrowed/(# shrs x (1-MM))
2 restricted account & what must happen to reverse it when account drops below initial margin  margin call from brokerage firm; entire acct must come up to initial margin (add more equity) to buy new stock vs responding to margin call to bring up to maintenance margin
Street name the registration of secs in a brokerage firm’s name instead of in the buyer’s name.
Insider trading and what rule set to combat that? trading on Material insider (nonpublic) info by people with that info- board, top mngtment, large shareholders… rule: insiders must inform w/in 2 days of Buy or Sell
Wealth effect an increase (decrease) in spending that accompanies an increase (decrease) in perceived wealth (stock mrkt up, econ)
Block 10,000 shrs
Round lot gen unit of trading- 100 shares
Odd lot gen unit less than round
Thinly traded not many shares outstanding/trading
Long position Owning assets for their income & price appreciation
Bullish expecting prices will rise
Short postion selling borrowed assets for possible price deterioration
Short sale Sale of Borrowed securities in anticipation of a Price Decline; futures contract
Bearish expecting prices will decline
Covering the short sale Purchasing security to close an open short position; done by buying the same type and number of securities that were sold short. cover when speculate secs will rise. Rebuy stock
Settlement date- what? how long? T+3 (days); date by which an executed security trade must be settled. ie date by which a buyer Must Pay for the securities delivered by the seller.
Venture capitalist professnal investors speciality- provide cap to (invest in secs of) small emerging comp after angels. Nts wk2.6
IPO the fist sale of common stock to the gen public
Process of IPO prospectus, register comp w/ SEC, roadshow, syndicate of underwriters
Prospectus Full Disclosure; initial doc detailing the financial condition (risks) of a firm that must be filed with SEC to register a new issue of secs;
Registration process of filling info w/sec concerning a proposed sale of secs to the gen public
Roadshow when the management Travels around the country to Give Presentations to analysts, fund managers and potential investors; create interest and excitement
Underwriting process by which investment bankers raise investment capital from investors (secs are sold to the gen public) on behalf of corporations and governments that are issuing securities (investr buys the secs from the issuing firm)- firm commitment or best effo
firm commitment agreement invstment banker guarantees a sale of secs by agreeing to purchase the entire issue @ specified price
best efforts agreement invetmnt banker no gurantee the sale of sec
What are 3 invstment banker f(x)s? 1.Advisory 2.Underwriting 3.price stabilization ch2 wrksheet 1
Syndicate Group of investment bankers- together reduce risk
“out the window” vs “sticky issue” easily sold stocks vs harder to get rid of
Flotation expense (costs) investment banking fees, lawyers, accountants, printers, registration
Lock-up period how long: 6 months after IPO; window of Time in which insiders are not allowed to redeem or sell shares; helps portfolio managers avoid liquidity problems-flooding market; supply and image
SEC 1934; charged w/ protecting the investing public & insuring our public mrkts run fairly
Inside infoformation material, non-public info
Short swing profit rule SEC regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a 6-month (holding) period; can’t b traders in their own stock
Research shows what about insiders, implications & which info is more useful to gen public? tend to do better investing in own comp therefore must report trades w/in 48 hrs; their buying behavior more useful
Private placement Nonpublic sale of secs; sophisticated buyer; eliminate costs; no public disclosure; control…pg 44
Types of orders-market order order to buy or sell @ Current mrkt price (Quote) pg 23
Limit order buy or sell @ Specified price; sets Parameters
Day order canceled @ end of the day if not executed
Good-till-canceled will be kept on bks till reach desired price or lower—remains in effect till executed by broker or canceled by investor
Stop (loss) order Trigger price- An order placed with a broker to sell a security when it reaches a certain price; f(x): limit invesotr’s loss or assure a profit/protect gain.
Pyramiding A method of increasing a position size by using unrealized profits from successful trades to increase margin.
Real vs fin assets Physical or tangible assets that have value, due to their substance and properties. vs asset that derives value because of a contractual claim; no physical worth.
Hypothecation agreement practice: borrower pledges asset as collateral for a loan, retains ownership & enjoys its benefits. written agreement btwn a customer opening a margin account and a brokerage firm that pledges stock in the account as collateral for margin loans. The broke
who signs a hypothecation agreement? the owner of stock
Momentum buying system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period
3 reasons y would I not want to sell short? 1.stock thinly traded 2.hi dividend stock 3.short interest
Short squeeze situation in which a lack of supply and an excess demand for a traded stock forces the price upward. If a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely want out.
PE ratio= price of stock/earning per share. Earnings per share= net income/ # of shares outsanding; amount folks willing to pay for evry dollar the company earns.
Created by: libqueen