CH12- SECURITY MARKet

Question 1

What are the three types of securites

Answer 1

Common stocks
Preferred stocks
Bonds

Question 2

Common stocks

Answer 2

Most basic type, higher risk and higher reward

Question 3

Preferred stocks

Answer 3

Preferential treatment over common stock owners

Question 4

Bonds

Answer 4

Long terms debt

Question 5

Common shares

Answer 5

Voting rights (elect board of directors)
Right to dividends (money issued at the end of the year)
Capital gains
Pre-emptive right(new shares issued are show to common shareholders first then public)
Right to residual claim

Question 6

Preferred shares

Answer 6

Claims on assets
Payment of dividends
Cumulative features

Question 7

Bond characteristics

Answer 7

Par value (worth bond)
maturity date (date of repayement)
Coupon rate (return on investment)

Question 8

Bond yield calculation

Answer 8

Rate of return= (coupon interest +/- change in bond price)*100/ price paid for bonds

Question 9

Retrieving a bond

Answer 9

Serial bond

Sinking funds

Question 10

Serial bond

Answer 10

Bond issued out the same day but have different return dates

Question 11

Sinking bonds

Answer 11

Putting gradually

Question 12

Special bonds features

Answer 12

Callable bonds

Convertible bonds

Question 13

Callable bonds

Answer 13

Issues can redeem at a given prive prior to its maturity (lower interest rate)

Question 14

Convertible bonds

Answer 14

Holders have the right to exchange it for a stated number of shares

Question 15

Primary market

Answer 15

• newly issued security
• IP0 & seasoned equity offering
• private placement

Question 16

Secondary market

Answer 16

• previously issue securities
• stock market
• over counter vs electronic communication network

Question 17

Buying securities

Answer 17

• market orders

- limit orders

Question 18

Market orders

Answer 18

An order telling a broker to buy or sell a specific security at the best available price (current market price)

Question 19

Limit orders

Answer 19

An order to a broker to buy/sell a specific stock only if the price is below/ above a certain level

Question 20

Stratégies for investing for income

Answer 20

• market timing
• value investing
• investing for growth
• buying and holding

Question 21

Market timing

Answer 21

Making gains based on market timing (predict the rise and fall of a stock, but you might be wrong)

Question 22

Value investing

Answer 22

Finding undervalued stocks (hoping the stocks gains)

Question 23

Investing for growth

Answer 23

Find companies that are growing and thus business value will increase (gamble)

Question 24

Buying and holding

Answer 24

Buying a broad range of securities with long term possibilities

Question 25

Mutual funds

Answer 25

A pool of contributions of many investors and buys a wide array of stocks and securities

Question 26

Features of mutual funds

Answer 26

–  Diversification at a low cost
–  Professional Management: investing professionals investing for you
–  Variety
–  Liquidity

Question 27

Last trade

Answer 27

price of a common share on the last day of trade

Question 28

Change

Answer 28

closing price at the end of the day

Question 29

Bid and ask

Answer 29

: highest buyer price and the lowest seller price

Question 30

Day’s range

Answer 30

■  Day’s Range : highest and lowest price on a day

Question 31

52 week range

Answer 31

■  52-week range : highest and lowest price on 52 week

Question 32

Volume

Answer 32

■  Volume : numbers of certain shares that have been traded in a particular day

Question 33

Market cap

Answer 33

■  Market Cap : total market value of all common stock that are still issued/ outstanding

Question 34

P/e

Answer 34

■  P/E : price earning ratio

Question 35

EPS

Answer 35

■  EPS : earnings per share

Question 36

Div and yield

Answer 36

■  Div & Yield : dividence per share padded out at a particular year