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FS > Bonds, stocks, mutual funds. ETFs > Flashcards

Bonds, stocks, mutual funds. ETFs Flashcards

1
Q

What is investing

A

buying assets that grow in value over time

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2
Q

What is the difference between equity investing and income investment such as bonds

A

Equity investing often doesn’t pay regular interest and has a high risk-reward. Whereas income investing pays regular interest and has less risk- reward.

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3
Q

What is the difference between bull or bear market

A

A bull market is when the stock market has an upward trend that is greater than 20%. Bear market is when the stock market has a downward trend that is greater than 20%.

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4
Q

What is the difference bid and ask price for an equity

A

Bid price is the price a buyer is willing to pay for a stock. Ask price is the price a seller is willing to accept for their stock. The bid price is usually lower than the ask price since people don’t want to buy stocks at a high price and sellers want to make a profit off of selling the stock at a high price.

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5
Q

What is discount brokerage

A

you trade on your own, you don’t get any investment advice

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6
Q

What is full cover brokerage

A

charges more commission since they give you advice

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7
Q

What is an index.

A

a measure of how a market is doing and where its going. Each sector of the economy has its own index.

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8
Q

How do companies qualify to be included as an index fund

A

Companies qualify to be included as an index fund by passing the guidelines set by the index

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9
Q

What determine the price of equity and the price of bond

A

The price of equity and bonds are determined by supply and demand in the open market.

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10
Q

When would a bond be traded at discount , at par or at premium?

A

A bond would be traded at discount when the bank interest rate is higher than the bond interest rate. It would be traded at par when the bank interest rate and the bond interest rate are the same. The bond would be traded at premium when the bank interest rate is lower than the bond interest rate

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11
Q

What is the normal face value of a bond

A

The normal face value of a bond is $1000

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12
Q

How would bonds be quoted if it is traded above par, or at discount

A

Bonds traded at discount would be quoted below 100%. Ex. if the bond was traded at $950 when the face value was $1000 then the bond would be quoted as sold at 95% of the face value. Bonds traded above par value would be quoted above 100%. Ex. if the bond was traded at 1100 when the face value is 1000 then the bond would be quoted as sold at 110% of the face value.

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13
Q

How are basis points calculated

A

Basis points is calculated by making 1/0.01 = x/increase in yield in %

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14
Q

Who would issue bonds

A

Businesses, and firms would issue bonds.

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15
Q

How to calculate current yield

A

Current yield = coupon payment/ PV of bond
coupon payment = Face value * coupon rate
PV of bond = current market price

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16
Q

How to calculate Yield to maturity

A

YTM = C +((FV -PV)/t)/((FV+PV)/2)
C= coupon rate/ interest rate
FV = face value
PV = present value
t = years to maturity

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17
Q

What is the difference between coupon rate and yield rate

A

Coupon rate is the rate of interest the bond pays annually. The yield rate is the rate of return the bond generates.

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18
Q

How is a bond’s price determined

A

The bond price is determined by supply and demand in the market, and term to maturity

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19
Q

What is the difference between the Principal trade and the Agency transaction

A

Agency transactions need a buyer to be “matched” with a seller directly on the exchange and the trade will not be completed if the other party can’t be found. In the principal transaction the dealer uses its bond inventory as the other party.

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20
Q

State the different features for bonds and the purposes of them ( convertible, callable etc)

A

Repayment date which is also known as the redemption date or maturity date, the coupon rate which is the interest rate and the face value of the bond. Convertible bonds allow an option to exchange bonds at a future date for a predetermined amount of security like common or preferred shares. Callable bonds give the issuer the option to payback the bondholders before the maturity date

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21
Q

What is a yield curve

A

It is a graph that shows the current interest rate for bonds of various bond maturities

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22
Q

What is market capitalization

A

It is the value of a company that is traded on the stock market.

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23
Q

When would a yield curve be negative

A

A yield curve would be negative when it is forecasted that the economy will slow down or go into recession. It is related to a situation with deflation.

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24
Q

when would a yield curve be positive

A

A yield curve will be positive when the economy is growing, unemployment rate is low, consumers expect a positive inflation.

25
Q

when would a yield curve be flat

A

A yield curve will be flat when the economy is in a transition period from a healthy economy to a recessionary economy

26
Q

What is electronic trading environment. Are all stock markets using this method of trading

A

Electronic trading environment is a digital trading system. Not all stock markets are using the electronic trading environment; some markets still have an open trading floor where the media reports the development of the stock market.

27
Q

what are blue chip stocks

A

Blue chip stocks are stocks of companies that are well known, high-quality and industry leaders.

28
Q

what are growth stocks

A

Growth stocks are stocks that have a growth rate above the rate of the average company within the same industry.

29
Q

what are cyclical stocks

A

A cyclical stock is a stock that is affected by the business cycle of the economy.

30
Q

what are speculative stocks

A

Speculative stocks are stocks that are considered very risky in the stock market.

31
Q

what are turnaround stocks

A

Turnaround stocks are stocks that have gone down but might go back up.

32
Q

What is the difference between primary and secondary market

A

Primary market is where the companies sell their shares to firms who are shareholders. Secondary market is where the shareholders sell their shares in the stock market

33
Q

what is a transfer agent

A

a company that has all the transactions of the shareholders

34
Q

what does IPO stand for and what does it mean

A

initial public offering which is the first sale of shares by a company to the public

35
Q

what is a board lot

A

a standardized number of shares defined by a stock exchange as a trading unit

36
Q

What is a market index

A

A hypothetical portfolio of investment holdings that represent a segment of the financial market.

37
Q

How do companies get onto the index

A

Determined by a predetermined set a criteria

38
Q

what are mutual funds

A

A type of investment fund that are a collection of investments which include stocks, bonds, etfs etc.

39
Q

how are mutual funds managed

A

They are managed by a fund manager who is an expert investor or by a team of investors who make decisions on when to buy and sell investments within the fund.

40
Q

how are funds priced

A

The funds are priced by units and not shares. You purchase mutual funds based on how much money you want to spend. not the number of shares

41
Q

What is MER

A

MER is the management expense ratio which is represented as a percentage of your assets in the fund that are paid annually

42
Q

Are mutual funds investments safe

A

They are considered safer than stocks.

43
Q

What does ETF stand for and what are they

A
  • exchange traded fund
  • a mutual fund trusts whose units trade on a stock exchange.
  • Some give you exposure to an entire bond market index
  • some try to track the performance of a government benchmark
44
Q

Bear Market

A

a downward trend in the stock market for greater than 20%

45
Q

bonds

A

IOU loan with interest

46
Q

common stock

A

an equity security that represents the ownership of a company. Shares that have voting rights

47
Q

corporate bonds

A

bonds that are issued by a company, and as an investor you are lending money to a company

48
Q

dividends

A

usually cash payments declared by a corporation to shareholders. It is a distribution of a company’s profit to shareholders

49
Q

Financial Statements

A

statements that show the overall financial data of a company (balance sheet, income statement, cash flow statement)

50
Q

Generally Accepted Accounting Principles (GAAP)

A

a set of rules and regulations that are used in accounting to prevent fraudulent or misleading information

51
Q

index funds

A

pooled investments that try to replicated the returns of some market indexes

52
Q

Initial Public Offering (IPO)

A

common share of a company are being sold for the first time to the public, usually the Financial institution

53
Q

Investment

A

using savings to make money; commitment of funds to one or more assets that will be held for some future time period

54
Q

liquidity

A

how fast your assets can turn into cash

55
Q

Portfolio

A

collection of securities or investments held by an investor.

56
Q

Preferred Stock

A

an equity security that represents the ownership of a company. Shares that have no voting right and usually more expensive than common shares and they have dividends but not guaranteed. Dividends are only guaranteed if they are cumulative preferred stock

57
Q

risk

A

the change that the actual return on an investment will be different from the expected return

58
Q

Toronto Stock Exchange (TSX)

A

is a place where securities are listed and traded.

59
Q

Basis point

A
  • a unit of measurement of a bond’s yield.
  • 1 basis point = 1/100th of 1% = 0.001. 100 basis point = 100 x 0.01 = 1.

FS (3 decks)

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