Chapter 16 Flashcards
time value of money
principle that invested money grows, over time, by earning interest or some other form of return
compound growth
compounding of interest over time - with each additional time period, interest returns accumulate
stock
portion of ownership of a corporation
common stock
most basic form of ownership, including voting rights on major issues, in a company
market value
current price of a share of stock in the stock market
book value
value of a common stock expressed as the firm’s owners’ equity divided by the number of common shares
dividend
payment to shareholders, on a per-share basis, out of the company’s earnings
mutual fund
company that pools cash investments from individuals and organizations to purchase a portfolio of stocks, bonds, and other securities
prospectus
registration statement filed with the SEC containing information for prospective investors abut the security to be offered and the issuing company
insider trading
illegal practice of using special knowledge about a firm for profit or gain
exchange-traded fund
bundle of stocks or bonds that are in a n index that tracks the overall movement of a market but, unlike a mutual fund, can be traded like a stock
securities
stocks, bonds, and mutual funds representing secured, or asset-based, claims by investors against issuers
securities markets
markets in which stocks and bonds are sold
primary securities market
market in which new stocks and bonds are bought and sold by firms and governments
securities and exchange commission (SEC)
government agency that regulates US securities markets
investment bank
financial institution that specializes in issuing and reselling new securities
secondary securities market
market in which existing (not new) stocks and bonds are sold to the public
stock exchange
an organization of individuals to provide an institutional auction setting in which stocks can be bought and sold
national association of securities dealers automated quotation (NASDAQ) system
world’s oldest electronic stock market consisting of dealers who buy and sell securities over a network of electronic communications
electronic communication network (ECN)
electronic trading system that brings buyers and sellers together outside traditional stock exchanges
stock broker
individual or organization that receives and executes buy and sell orders on behalf of outside customers in return for commissions
book-entry ownership
procedure that holds investors’ shares in book-entry form, rather than issuing a physical paper certificate of ownership
market index
statistical indicator designed to measure the performance of a large group of stocks or track the price changes of stock market
bull market
period of rising stock prices, lasting 12 months or longer, featuring investor confidence for future gains and motivation to buy
bear market
period of falling stock prices marked by negative investor sentiments with motivation to sell ahead of anticipated losses
dow jones industrial average (DJIA)
oldest and most widely cited market index based on the prices of 30 blue-chip, large-cap industrial firms on the NYSE
S&P 500
market index of US equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market
NASDAQ composite index
market index that includes all NASDAQ-listed companies, both domestic and foreign, with a high proportion of technology companies and small-cap stocks
Russell 2000 index
specialty index that uses 2000 stocks to measure the performance of the smallest US companies
risk-return (risk-reward) relationship
principle that safer investments tend to offer lower returns whereas riskier investments tend to offer higher returns (rewards)
current/interest dividend yield
yearly dollar amount of income divided by the investment’s current market value, expressed as a percentage
price appreciation
increase in the dollar value of an investment at two points in time (the amount by which the price of a security increases)
capital gain
profit realized from the increased value of an investment
diversification
purchase of several different kinds of investments rather than just one
asset allocation
relative amount of funds invested in (or allocated to) each of several investment alternatives
portfolio
combined holdings of all the financial investments of any company or individual
secured loan (asset-backed loan)
loan to finance an asset, backed by the borrower pledging the asset as collateral to the lender
collateral
asset pledged for the fulfillment of repaying a loan
loan principal
amount of money that is loaned and must be repaid
annual percentage rate (APR)
one-year rate that is charged for borrowing, expressed as a percentage of the borrowed principal
unsecured loan
loan for which collateral is not required
angel investors
outside investors who provide new capital for forms in return for a share of equity ownership
venture capital
private funds from wealthy individuals seeking investment opportunities in new growth companies
corporate bond
formal pledge obligating the issuer (the company) to pay interest periodically and repay the principal at maturity
bond indenture
legal document containing complete details of a bond issue
maturity date (due date)
future date when repayment of a bond is due from the bond issuer (borrower)
face value (par value)
amount of money that the bond buyer (lender) lent the issuer and that the lender will receive upon repayment
default
failure of a borrower to make payment when due to a lender
bondholders’ claim
requires for court enforcement of a bond’s terms of payment
bankruptcy
court-granted permission for a company to not pay some or all debts
mortgage-baked security (MBS)
mortgages pooled together to form a debt obligation - a bond - that entitles the holder (investor) to cash that flows in from the bundled mortgages
initial public offering (IPO)
first sale of a company’s stock to the general public
corporate raider
investor conducting a type of hostile corporate takeover against the wishes of the company
stock split
stock dividend paid in additional shares to shareholders, thus increasing the number of outstanding shares
market capitalization (market cap)
total dollar value of all the company’s outstanding shares
debt financing
long-term borrowing from sources outside a company
equity financing
using the owners’ funds form inside the company as the source for long-term funding
