CH12- SECURITY MARKet Flashcards
What are the three types of securites
Common stocks
Preferred stocks
Bonds
Common stocks
Most basic type, higher risk and higher reward
Preferred stocks
Preferential treatment over common stock owners
Bonds
Long terms debt
Common shares
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
Preferred shares
Claims on assets
Payment of dividends
Cumulative features
Bond characteristics
Par value (worth bond) maturity date (date of repayement) Coupon rate (return on investment)
Bond yield calculation
Rate of return= (coupon interest +/- change in bond price)*100/ price paid for bonds
Retrieving a bond
Serial bond
Sinking funds
Serial bond
Bond issued out the same day but have different return dates
Sinking bonds
Putting gradually
Special bonds features
Callable bonds
Convertible bonds
Callable bonds
Issues can redeem at a given prive prior to its maturity (lower interest rate)
Convertible bonds
Holders have the right to exchange it for a stated number of shares
Primary market
- newly issued security
- IP0 & seasoned equity offering
- private placement
Secondary market
- previously issue securities
- stock market
- over counter vs electronic communication network
Buying securities
- market orders
- limit orders
Market orders
An order telling a broker to buy or sell a specific security at the best available price (current market price)
Limit orders
An order to a broker to buy/sell a specific stock only if the price is below/ above a certain level
Stratégies for investing for income
- market timing
- value investing
- investing for growth
- buying and holding
Market timing
Making gains based on market timing (predict the rise and fall of a stock, but you might be wrong)
Value investing
Finding undervalued stocks (hoping the stocks gains)
Investing for growth
Find companies that are growing and thus business value will increase (gamble)
Buying and holding
Buying a broad range of securities with long term possibilities
Mutual funds
A pool of contributions of many investors and buys a wide array of stocks and securities
Features of mutual funds
– Diversification at a low cost
– Professional Management: investing professionals investing for you
– Variety
– Liquidity
Last trade
price of a common share on the last day of trade
Change
closing price at the end of the day
Bid and ask
: highest buyer price and the lowest seller price
Day’s range
■ Day’s Range : highest and lowest price on a day
52 week range
■ 52-week range : highest and lowest price on 52 week
Volume
■ Volume : numbers of certain shares that have been traded in a particular day
Market cap
■ Market Cap : total market value of all common stock that are still issued/ outstanding
P/e
■ P/E : price earning ratio
EPS
■ EPS : earnings per share
Div and yield
■ Div & Yield : dividence per share padded out at a particular year
