Business VI

Question 1

Day trader

Answer 1

An investor who tries to make all his profits in a single day.

Day traders often close out all their positions at the end of the day.

Question 2

DJIA

Answer 2

Dow Jones Industrial Average

A weighted index of the 30 largest publicly traded companies on the NYSE.

They are all big American blue-chip companies.

Question 3

Equity REIT

Answer 3

REIT’s that invest in and own properties.

Their revenues come from their properties’ rents.

Question 4

Depreciation

Answer 4

1) . A method of allocating the cost of a tangible asset over its useful life.
2) . A decrease in an asset’s value caused by unfavorable market conditions.

Question 5

REIT

Answer 5

Real estate investment trust

A security that invests in real estate - either through properties or mortgages.

They receive special tax considerations and offer high yields.

Question 6

Municipal bond

Answer 6

aka - a “muni”

A debt security issued by a state, municipality, or county to finance it’s capital expenditures.

They are exempt from federal taxes and from most state and local taxes, especially if you live in the state where it was issued.

They may be used to fund expenditures such as the construction of highways, bridges, or schools.

They are bought for their favorable tax implications, and are popular with people in high income tax brackets.

Question 7

Appreciation

Answer 7

An increase in the value of an asset over time.

It can occur because if increased demand, decreased supply or changes in interest rate or inflation.

Question 8

Book value

Answer 8

The value at which an asset is carried onto a balance sheet.

To calculate - Cost of the asset MINUS accumulated depreciation.

Or

For a company it would be it’s net asset value - calculated by total assets MINUS intangible assets (patents and goodwill) and liabilities.

Question 9

Distribution

Answer 9

Opposite of “accumulation”

When traders become disillusioned about the prospects of their stock price rising, and they sell it.

Question 10

NYBOT

Answer 10

New York Board of Trade

A commodities exchange in NY that trades commodity futures and options, currency, and indexes.

Question 11

What variables does the Fed traditionally look at when it makes monetary decisions?

Answer 11

Employment and inflation.

It will raise interest rates if:

• the jobless rate is low and layoffs are trending downward.

And -

• inflation is somewhere near its’ 2% target.

Question 12

Run rate

Answer 12

How the financial performance of a company would look if you were to extrapolate current results out over a certain period of time.

Example: if a company makes a $100 million revenue in its first quarter it’s run rate could be said to be $400 million (meaning that if they were to continue at the same pace that is how much they would make for the year).

Question 13

SG and A

Answer 13

Selling, general and administrative expense.

Reported on the income statement, this is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company.

Question 14

Near-term

Answer 14

Refers to a period of time that is a short time in the future.

Question 15

WBG

Answer 15

World Bank
(World Bank Group - “WBG”)

An international organization that fights poverty by offering assistance to developing countries. They give them loans, advice, and training with the aim of eliminating poverty.

There are 184 member countries that are shareholders in the IBRD, which is the primary arm of the WBG.

To become a member, a country must first join the IMF. Member countries must purchase a certain number of shares.

Question 16

IBRD

Answer 16

International Bank of Reconstruction and Development.

A component of the UN’s World Bank Group created in 1945 to provide funding toward post WWII rebuilding efforts.

In the modern era, the IBRD mostly gives loans and aid to developing and less fortunate countries with the aim of reducing poverty.

Question 17

IMF

Answer 17

International Monetary Fund

Created near the end of WWII.

An int’l organization created to help global monetary cooperation, increasing int’l trade, promoting high employment, reducing poverty, etc.

The IMF has economists who deliver reports and help plan fiscal and monetary policy for member countries.

It also provides monetary support for member countries that are experiencing economic troubles. The financial assistance is given on the condition that the member country implements the fiscal policies suggested by the IMF.

Question 18

Value-added

Answer 18

The enhancement a company gives its product or service before offering the product to customers.

Value-added is used to describe instances where a firm takes a product that may be considered a homogeneous product, with few differences from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value.

A value add can either increase a product’s price or value.

Example: Offering one year of free support on a new computer would be a value-added feature.

Question 19

Public offering

Answer 19

The sale of equity shares or other financial instruments by an organization to the public in order to raise funds for business expansion and investment.

Public offerings of corporate securities in the US must be registered with and approved by the SEC and are normally conducted by an investment underwriter.

Question 20

Fixed income

Answer 20

A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels.

• fixed income budgeters and investors are often retirees who rely on their investments to provide a regular, stable income stream.
• the most common type of fixed income security is the bond. Bonds are issued by federal govt’s, local municipalities, or corporations.

Question 21

Tender offer

Answer 21

An offer to purchase some or all of shareholders’ shares in a corporation.

• the price offered is usually at a premium to the market price.
• tender offers may be friendly or unfriendly.

Question 22

Buyback

Answer 22

The repurchase of outstanding shares by a company in order to reduce the number of shares on the market.

• companies will buy back shares either to increase the value of shares still available (reducing supply) or to eliminate any threats by shareholders who may be looking for a controlling stake.
• buybacks are good for companies because if a buyback increases share price (it usually does) EPS also goes up.
• buybacks are often done as alternatives to offering dividends (though they can be done in tandem): when the buyback happens, stock price rises and shareholders can sell for a profit.

Question 23

What are the two ways buybacks can be carried out?

Answer 23

1). Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares at a premium to the current market price.
(This premium compensates investors for tendering their shares rather than holding on to them).

2). Companies buy back shares on the open market over an extended period of time.

Question 24

YTD

Answer 24

Year to date

The return so far this year (beginning Jan. 1st)

Question 25

52 week high/low

Answer 25

The highest and lowest prices that a stock has traded at during the previous year (the previous year beginning from the current day).

• investors view it as an important factor in determining a stock’s current value and predicting future price movements.
• as a stock trades within its 52 week high (between the high and low points) investors show increased interest in it.

Question 26

Popular 52 week high/low strategies

Answer 26

• buy when the price exceeds the 52 week high or dips below 52 week low (rationale being if the price breaks out or breaks down the momentum will carry it further).

OR

• sell when the price reaches 52 week high on the assumption that the price will recede. Or to buy when the price reaches 52 week low in anticipation of it rising.

Question 27

Fundamentals

Answer 27

Qualitative and quantitative information that describes the economic well being (valuation) of a company.

Important fundamentals: revenue, EPS, cash assets, long term debt, dividend yield.

Question 28

Growth stock

Answer 28

(aka”glamor stock”)

• a company whose earnings are expected to grow at an above average rate relative to the market.
• they usually don’t pay dividends, as they often reinvest retained earnings in capital projects.
• most technology stocks are growth stocks

Question 29

Retained earnings

Answer 29

The percentage of net earnings not paid out as dividends, but retained to be reinvested in its core business, or to pay debt.

• companies often retain earnings to invest in areas where they can create growth opportunities, like buying new machinery or R and D.

Question 30

Capital project

Answer 30

A long term investment in order to build upon or add or improve on capital-intensive projects.

• infrastructure projects like roads or dams are capital projects (they can also be corporate).

Question 31

Value stock

Answer 31

A stock that tends to trade at a lower price relative to its fundamentals (i.e. dividends, earnings, sales) and thus considered undervalued by a value investor.

Question 32

Characteristics of a value stock

Answer 32

High dividend yield

Low price-to-book ratio and/or low price-to-earnings ratio

Question 33

What do people who invest in value stocks believe?

Answer 33

They believe that the market isn’t always efficient and that its possible to find companies trading for less than they are worth.

Question 34

Easy way to attempt to find value stocks

Answer 34

Use the “Dogs of the Dow” investing strategy (buy the 10 highest dividend-yielding stocks on the Dow at the beginning of each year).