65 Cards Flashcards
Common stocks
Equity security representing ownership
Benefits :
Capital appreciation/growth
(Dividend from some issuers)
Common stock risks
Systematic
Market risk, inflation (short term risk)
Non Systematic
Business, financial, legislative, regulatory, political (foreign), liquidity
Common stock typical investor
Young, more aggressive
Seeks capital appreciation,
May seek divided income from value stocks
Common stock, growth stocks
Growing companies,
Maybe minimally or unprofitable,
Low or no divided payouts, high P/E ratios
Common stock value (undervalue) stocks
Large, well established companies,
Typically pay divided,
High dividends payout ratio, low P/E
Preferred stocks
Equity security representing ownership,
Pays fixed dividend rate based on par
Preferred stocks, Potential features
Cumulative vs straight - skipped dividend,
Callable - maybe bought back by issuer,
Convertible- into common stock of same issuer,
Participating-extra dividends if company preforms
Preferred stocks benefits
Dividend income,
Lower tax rates on income
Preferred stocks risks
Systematic risks:
Interest, ,
Inflation,
Reinvestment
Non systematic riska:
Business or financial (threatens dividends,
Liquidity risk
Debt securities
Represent debt obligations of issues (loans),
Pays fixed interest rates based on par value (1,000)
Debt securities potential features
Callable, may be bought back by issuer,
*call premium = amount above par to be paid if called
*call protection = amount of time before callable,
Convertible- into common stock of same issuer,
Zero coupon - sold at discount, matures at par
Debt securities Benefits
Interest income,
Capital appreciation if convertible ,
Variety of choices in the market
Debt securities risks
Systematic risks:
Interest rate risk= long maturity and low coupon,
Inflation risk= long maturity,
Reinvestment risk=except zero coupon code
Debt securities Non systematic risks
Default credit risk=
Interest grade (bbb or above)
Speculative (junk) is bb below,
Liquidity
Legislative
Regulative
Political (foreign only)
Debt securities typical investor
Older, more conservative (except junk bonds),
Seeks income, especially in retirement
Corporate debt securities
*Commercial paper - short term (270 days or fewer), zero coupon,
*Debentures- long term, unsecured bond
*mortgage bond- secured by real estate or property
*collateral trust cert - secured by securities or subsidiary
US gov securities
*Treasury bills= 1 yr or less, zero coupon
*Treasury notes - 2-10 yrs. Pays semi annual interest
*Treasury bonds- up to 30 yrs, Pays semi annual interest
US goc debt securities cont
*STRIPS- long term up to 30 yrs zero coupon
*TIPS- Long term, pays semi annual interest
** Par value adjustments to emplation rate every 6 months
** Greater of original or adjusted par paid at maturity
Municipal securities General obligation bonds
General obligation bonds,
* Non self supporting debt,
* Funds public parks, schools, roads, comma et cetera
* Is backed by property (ad valorem) taxes
* Subject to debt limits and voter approval
Municipal Securities, revenue bonds
- Self supporting debt
- Funds toll roads, stadium’s, airport’s, etc
- Backed by user charges
- Not subject to debt limits or voter approval
Municipal securities, not subject to taxes if purchased by residents
Most suitable for high tax brackets
Not suitable for low tax brackets or retirement plans
Investment companies classifications
.Management companies open and closed end
. Unit investment trusts - UITs
. Face amount certificates
Investment companies continued
- Offer pool investment opportunities
*Most suitable for investors seeking, instant diversification, professional management (Except fixed UITs)
Open end management companies, Mutual funds
*redeemable pulled portfolios of managed securities
*active management
Attempting to “beat the market
*intends to beat benchmark (S&P 500)
*Higher expense ratios
