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Econ 11
| Question | Answer |
|---|---|
| Why would a corporation sell stock? | To raise funds. |
| What is a share? | A portion of a stock. |
| Two ways owners can make money on stocks | 1.Dividends 2. Capital gains |
| Dividends | Profits paid out to stock holders, usually 4 times a year |
| Capital gains | Amount receive over the purchase price of a stock when it is sold. |
| Difference between income stock and growth stock | Income stock pays dividends-Growth stock reinvests dividends in purchasing more stock. |
| Difference between common stock and preferred stock | A common stock owner can vote, a preferred stock owner can not vote. A preferred stock owner gets paid first if the company goes out of business. |
| Stock split | A single share of stock splits into more than one share |
| Why would a company split their stock? | Companies split stocks when the price to buy a stock is so high few cam afford to buy it. |
| The biggest risks of buying stock are: | 1.Investment is not insured- 2.May earn less than expected 3.If company fails-stock holder gets paid after all bills are paid. |
| Stockbroker | A person who links the buyers with the sellers of stock. |
| Brokerage firm | A business that specializes in trading stocks. |
| Stock exchange | A market for buying and selling stocks and bonds |
| Biggest difference between NYSE and NASDAQ | NYSE-brick and motar building NASDAQ-electronic market (internet-telephones) |
| Day Trading | Buy stocks low, hold just for a brief time-usually less that a day, in hopes can sell high and make a profit |
| Dow Jones Industrial Average | Average value of a stocks preformance |
| How many stocks make up the Dow? | 30 |
| Standards and Poors 500 | Company that tracks the preformance of 500 different stocks |
| Bear market | slugish or declinging in value |
| Bull market | strong or gaining in value |
| investment | The act of redirecting resources to create benefits for the future. |
| financial system | Network of structures and mechanisms that allow the transfer of money between savers and borrowers. |
| What are financial assets or securities? | Documents that represent claims on the property or income of the borrower. |
| Financial intermediaries | Banks, credit unions, financial companies, mutual funds, hedge funds, life insurance companies, pension funds |
| Purpose of financial intermediaries | Link borrowers and savers |
| Mutual funds | Pooled money of investors used to buy stocks and bonds etc. for the purpose of making money |
| Life Insurnace Companies | Provide financial protection for the family of the insured |
| Pension funds | Income some retires receive when they reach a certain age |
| Portfolio | Collection of financial assets |
| Liquidity | Ability to convert assets into cash |
| The riskier the investment, the ______ the return. | higher |
| What is purchased for future financial benefit? | An investment |
| Prospectus | An investment report provided by intermediaries to investors |
| Diversification | Spreading out investments to reduce risk |
| Hedge funds | Private investment organizations that employ risky strategies that often result in huge profits for investors. |
| Return | Money an investor receives above and beyond the sum invested |
| Money Market Mutual Funds | Intermediaries buy short term financial assets that yield higher interest rates than savings accounts--not FDIC insured |
| Primary Market | Market for selling financial assets that can be redeemed only by the original holder |
| Secondary Market | Market that resells financial assets |
| Capital Market | Market in which money is lent for a period longer than one year |
| Corporate Bonds | Bonds sold by corporations to help raise money for their business--moderate level of risk |
| Junk Bonds | Risky high yield bonds |
| CD's | Certificates of Deposit--Safe--FDIC Insured |
| Municipal bonds | Bonds issued by state and local governments to finance roads, bridges, etc.--considered safe investments |
| Inflation-indexed Bonds | Principal and interest are linked to the inflation rate |
| Savings Bonds | Low denomination bonds issued by the US Government-low risk |
| Two disadvantages to issuer for selling bonds | 1. Must make fixed interest payments. 2. Firm must maintain financial helath to avoid bonds being downgraded to a lower bond rating-thus making the bonds harder to sell even at a discount price |
| Reasons issuers sell bonds | 1. Rate stays the same 2. Company does not have to share profits with bond holders |
| Reasons why investors invest in bonds | Relatively safe investment |
| Three basic components of a bond | 1. coupon rate, 2. maturity date, 3. par value |
| Money Market | Market in which money is lent for periods of one year or less |
| Coupon rate | Interest rate your money will earn |
| The return on investments is closely linked to _____and______. | Risk and Reward |
| Maturity | Time at which payment to a bond holder is due |
| Par Value | amount paid at maturity |
| Issuer | Seller of a bond |
| Holder | Person who buys a bond |
| Yield | Annual rate of return on a bond if bond is held to maturity |
| Standards and Poors & Moody's | Independent firm that publishes bond issuer's credit ratings |
| Capital gains | Difference between the higher selling price and the lower purchase price |
| Put option | Contract for selling stock at a particular price until a specified future date |
| Bull market | Steady rise over time |
| Four ways to classify stocks | 1.Income stock, 2. growth stock, 3. common stock, 4. prefered stock |
| Income stock | Pays dividends |
| Growth stock | Does not pay dividends, profits reinvested in more stock |
| Common stock | Stockholder has the right to vote on company policy |
| Prefered stock | No voting rights-gets payed first in event of financial issues |
| Two ways for stockholders to make a profit | 1. Dividends 2. Capital Gains |
| Shares | A portion of a stock |
| When do stocks split? | When the purchase price becomes so high people won't buy them. |
| Nasdaq | Sells stocks and bonds over phone or internet----- National Association of Securities Dealers Automated Quotation |
| Hooverviles | Shelters made of scrap wood, old tin, and other salvaged materials--residents blamed the market crash and living conditions on Pres. Hoover |
| Speculation | Making risky investments with borrowed money in hopes of getting a big return |
| Before WWII who bought and sold stocks in the stock market? | The wealthy |
| Sabanes-Oxley Act | Reform aimed at reforming lax company accounting practices |
| Bear market | stagnate or falling for a period of time |
| Futures | Contracts to buy or sell commodities at a particular date in the future at a price specified today |
| OTC--Over the Counter Market | Stocks and bonds bought or sold from a dealer or broker over the phone or internet |
| Options | Contracts that give investors the choice to buy or sell stocks and other financial assets |
| Call Options | Contact for buying sotck at a particular price until a specified future date |
| Second largest securities market | Nasdaq-created 1971-deals with 500 world wide companies |
| Largest securities market | NYSE-deals with 30 top world wide companies |
| Brokerage Firms | Business that specialize in trading stocks |
| Stock Exchange | A market for buying and selling stocks |
| Stockbroker | Person who links buyers and sellers of stocks |
| Buying on Margin | Purchase stock for only a fraction of its price and borrowing the rest from a brokerage firm |
| Great Crash of 1929 | Collapse of stock market-one of many issues that began the Great Depression |
| Blue Chip Companies | Largest most financially sound stock companies---best known companies---found only on NYSE |
| Capital Market | Market in which money is lent for periods longer that a year |
| Capital Loss | The difference between the selling price and purchase price that results in a financial loss for the seller |
| Speculation | The practice of making high-risk investments with borrowed money in hopes of getting a big return |
| Treasury bond | United states government bond with maturity of 10 to 30 years |
| Money | Anything that serves as a medium of exchange, unit of an account or store of value |
| Medium of exchange | Anything that is used to determine value during the exchange of goods and services |
| Barter | The direct exchange of one set of goods or services for another |
| Unit of account | A means for comparing the values of goods and services |
| Store of Value | Something that keeps its value if it is stored stored rather than spent, like gold |
| Currency | coin and paper bulls used as money |
| Limited Supply | Federal Reserve controls the money supply to keep our currency valuable |
| Commodity money | Objects that have value in and of themselves that are also used as money, example coin from recycling |
| Representative money | Object that have value because the holder can exchange for something else |
| Fiat money | Objects that have value because a government has decreed that they are acceptable ways to pay debt |
| Specie | Coined money, usually gold or silver, used to back paper money |
| Bank | An institution for receiving, keeping and lending money |
| National Bank | A bank chartered by the federal government |
| Bank run | Widespread panic in which many people try to redeem their paper money at the same time |
| greenbacks | Paper currency issued during the Civil War |
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sudokken
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