fin310
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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
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| Recession | 2 consecutive quarters (3 month period) of negative GDP growth; = economic shrinkage
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| Current GDP growth (US) | 2%
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| Dec 1/2 , Jan ½, (Feb) unemployment | 7.8%
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| Gross Domestic Product (GDP) | sum Total of all Final goods & services produced in a country w/in a yr
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| In 2011 US’s GDP | 15.1 trillion
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| Top 5 economies | 1.USA 2.China 3. India 4.Japan 5.Germany
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| Top 3 decision makers (the spenders) | Households 70%, Firms, Gov’t
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| Market | where buyers & sellers come together
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| 2 types of Financial markets | 1.Money markets (short term 1 yr) 2.Capital mrkts (long-term)—stocks & bonds
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| 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
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| Financial intermediary: what? Who 3? | a fin institution (1bank, 2,pension fund, 3insurance) that borrows from one group and lends to another
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| Stocks | Ownership dividends- Equity stake of its owners
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| Bonds | lending—contract…interest- Debt security
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| 2 Qs to concern self w/-- return | how much? How long?
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| Portfolio | collection o financial assets—an accumulation of assets owned by the investor designed to transfer purchasing power to the future
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| What’s in your portfolio depends on what 4 factors? | 1.time 2.risk tolerance 3.tax situation/bracket 4.knowledge
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| Risk | uncertainty that my expected return will be realized; the possibility of loss; UnCertainty of future returns
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| Indirect investment | saver of funds goes through financial intermediaries to lend money to user of funds
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| What r 3 financial intermediary | banks, insrance, pension funds
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| Fed Reserve Chairman | Ben Bernanke
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| Marketability | Salable (can sell it)- whether can b brought or sold; the ease with which an asst may be bought and sold
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| 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
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| Real vs Fin assets | tangible vs. stocks & bonds
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| 2 ways to rank companies | by Sales/revenues, by Market value/capitalization
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| 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
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| Large cap stock = | 10 bill+
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| Small cap = | 1 bill-
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| Short-term money market instruments | treasury bills, commercial paper, bank CD’s (cert. of deposit)
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| 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
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| 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
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| 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
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| 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
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| Specialist | dealr on NY stock xchange
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| Over-the-counter (OTC) mrkt; for example? | informal 2ndary mrkt for unlisted secs; NASDAQ
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| Dealers | Market Makers who buy and sell securities for their Own Accts. Inventory
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| Bid | dealer’s offer (to buy from you) price
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| Ask | dealer Sell to you price
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| Spread | the difference btw the bid and ask prices
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| Broker | agent who handles buy and sell orders for an investor; paperwork; no ownership
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| Buying on margin | using borrowed $ to buy stocks- in street name; secs serve as collateral for loan
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| 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
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| 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
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| maintenance margin | the min Equity required for a margin account ie b4 u get a margin call
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| Margin call | if collateral (equity) fall below a specified level (maintenance), broker calls investor to put in more assets or she’ll sell
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| What price (p) triggers a margin call? | p = $ borrowed per share/(1-Maint. Margin) or $ borrowed/(# shrs x (1-MM))
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| 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
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| Street name | the registration of secs in a brokerage firm’s name instead of in the buyer’s name.
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| 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
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| Wealth effect | an increase (decrease) in spending that accompanies an increase (decrease) in perceived wealth (stock mrkt up, econ)
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| Block | 10,000 shrs
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| Round lot | gen unit of trading- 100 shares
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| Odd lot | gen unit less than round
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| Thinly traded | not many shares outstanding/trading
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| Long position | Owning assets for their income & price appreciation
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| Bullish | expecting prices will rise
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| Short postion | selling borrowed assets for possible price deterioration
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| Short sale | Sale of Borrowed securities in anticipation of a Price Decline; futures contract
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| Bearish | expecting prices will decline
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| 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
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| 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.
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| Venture capitalist | professnal investors speciality- provide cap to (invest in secs of) small emerging comp after angels. Nts wk2.6
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| IPO | the fist sale of common stock to the gen public
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| Process of IPO | prospectus, register comp w/ SEC, roadshow, syndicate of underwriters
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| 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;
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| Registration | process of filling info w/sec concerning a proposed sale of secs to the gen public
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| Roadshow | when the management Travels around the country to Give Presentations to analysts, fund managers and potential investors; create interest and excitement
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| 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
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| firm commitment agreement | invstment banker guarantees a sale of secs by agreeing to purchase the entire issue @ specified price
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| best efforts agreement | invetmnt banker no gurantee the sale of sec
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| What are 3 invstment banker f(x)s? | 1.Advisory 2.Underwriting 3.price stabilization ch2 wrksheet 1
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| Syndicate | Group of investment bankers- together reduce risk
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| “out the window” vs “sticky issue” | easily sold stocks vs harder to get rid of
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| Flotation expense (costs) | investment banking fees, lawyers, accountants, printers, registration
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| 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
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| SEC | 1934; charged w/ protecting the investing public & insuring our public mrkts run fairly
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| Inside infoformation | material, non-public info
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| 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
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| 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
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| Private placement | Nonpublic sale of secs; sophisticated buyer; eliminate costs; no public disclosure; control…pg 44
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| Types of orders-market order | order to buy or sell @ Current mrkt price (Quote) pg 23
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| Limit order | buy or sell @ Specified price; sets Parameters
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| Day order | canceled @ end of the day if not executed
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| 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
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| 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.
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| Pyramiding | A method of increasing a position size by using unrealized profits from successful trades to increase margin.
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| 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.
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| 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
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| who signs a hypothecation agreement? | the owner of stock
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| 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
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| 3 reasons y would I not want to sell short? | 1.stock thinly traded 2.hi dividend stock 3.short interest
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| 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.
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| 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.
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