chapter 14

Question 1

Stocks represent ownership or “equity” in a firm. What are common stocks and how do they differ from preferred stocks? p. 406

Answer 1

Common stock is a certificate issued by a firm to raise funds that represents partial ownership in the firm. Investors who hold common stock normally have the right to vote on key issues such as the sale of a company.p.406

Preferred stock is a certificate issued by a firm to raise funds that entitles shareholders to first priority (ahead of common stockholders) to receive dividends. Corporations issue common stock more frequently than preferred stock.

Question 2

What are primary or secondary stock markets? p. 406

Answer 2

primary market is a market in which newly issued securities are traded. Firms can raise funds by issuing new stock in the primary market.p.406

A secondary market facilitates the trading of existing securities by enabling investors to sell their shares at any time.

Question 3

What is an IPO? p. 406

Answer 3

The first offering of a firm’s stock to the public.

Question 4

Describe Mutual funds. What is the S.P.D.R. basket of stocks p. 408

Answer 4

mutual funds sell shares to individuals and invest the proceeds in a portfolio of investments such as bonds or stocks. They are managed by experienced portfolio managers.
which is a basket of stocks that matches the S&P 500 index and is traded on the American Stock Exchange. You can buy Spiders through a broker, just like stocks.

Question 5

Real Estate p.401

Answer 5

One way of investing in real estate is by buying a home. The value of a home changes over time, in response to supply and demand.

Question 6

Describe the types of investors: institutional investors, portfolio managers, individual investors and day traders. p. 406

Answer 6

Institutional investors are professionals employed by a financial institution who are responsible for managing money on behalf of the clients they serve.p.406

portfolio managers because they manage a portfolio of securities (including stocks). More than half of all trading in financial markets is attributable to institutional investors.p.406

Individual investors commonly invest a portion of the money earned from their jobs. Like institutional investors, they invest in stocks to earn a reasonable return on their investment.