Chapter 16

Question 1

stock

Answer 1

claim on the assets of a corporation that gives the purchaser a share of the corporation

Question 2

Dow Jones Industrial Average

Answer 2

Most popular, widely cited indicator of day-to-day stock market activity. Weighted average of 30 widely traded stocks

Question 3

Initial Public Offering

Answer 3

Company’s first offering of stock to the public

Question 4

investment bank

Answer 4

firm that acts as an intermediary between the company that issues the stock and the public that wishes to buy the stock.

Question 5

dividend

Answer 5

share of the profits of a corporation distributed to stockholders

Question 6

index

Answer 6

portfolio of stocks, which represents a particular market or a portion of it, used to measure changes in a market or an economy

Question 7

bond

Answer 7

an IOU, or a promise to pay, issued by companies, governments, or government agencies for the purpose of borrowing money

Question 8

face value (par value)

Answer 8

dollar amount specified on the bond. the total amount the issuer of the bond will repay to the buyer of the bond

Question 9

coupon rate

Answer 9

percentage of the face value that the bond holder receives each year until the bond matures

Question 10

yield

Answer 10

annual coupon payment divided by price paid for the bond

Question 11

futures contract

Answer 11

agreement to buy or sell a specific amount of something at a particular price on a stipulated future date

Question 12

option

Answer 12

contract that gives the owner the right, but no the obligation, to buy or sell shares of a good at a specified price on or before a specified date

Question 13

corporate bond

Answer 13

Issued by private corporation. Sold at 10k average but can fluctuate on supply/demand. Interest paid on bond IS taxable

Question 14

municipal bond

Answer 14

Issued by state/local governments. Interest paid on bond IS NOT taxable

Question 15

Treasure bills, notes, and bonds

Answer 15

Bonds issued by federal govt. Bills mature in 13, 26, or 52 weeks. Notes mature in 2-10 years. Bonds mature in 10-30 years.

Question 16

Inflation-indexed treasury

Answer 16

Value of bond goes up with inflation to ensure that people are getting a certain “real-value” of money.

Question 17

Call Option

Answer 17

right to buy shares of a stock at a specified price within time limit. Use this when you a company’s stock is going to increase.

Question 18

Put Option

Answer 18

right to sell shares of stock at a certain price. Use this when you think a company’s stock you own will go down.