Chapter 19 Flashcards
Financial market places for stocks, bonds, and other investments
Securities
Two major functions for security markets
- They assist businesses in finding long term capital financing
- Provide private investors a place to buy and sell securities.
Markets that handle the sale of new securities
Primary markets
Markets that handle trading of securities between investors
Secondary markets
The first public offering of a corporation’s stock.
Initial public offering (IPO)
Specialists who assist in the issue and sale of new securities.
Investment Banker
Large organizations—such as pension funds, mutual funds, and insurance companies—that invest their own funds or the funds of others.
Institutional investors
An organization whose members can buy and sell (exchange) securities for companies and investors.
Stock Exchange
Exchange that provides a means to trade stocks not listed on the national exchanges.
Over-the-counter market
A nationwide electronic system that communicates over-the-counter trades to brokers.
NASDAQ
Federal agency that has responsibility for regulating the various exchanges.
Securities and Exchange Commission (SEC)
A condensed version of economic and financial information that a company must file with the SEC before issuing stock
Prospectus
using knowledge of information that individuals gain through their position that allows them to benefit unfairly from fluctuations in security prices
Insider Trading
Part of a firm’s profits that the firm may distribute to stockholders as either cash payments or additional shares of stock.
Dividends
What are 3 advantages to issuing stock
Stockholders are owners so they don’t have to be repaid
No legal obligation to pay dividends
Selling stock can improve firms balance sheet since issuing stock creates no debt.
Disadvantages of issuing stocks
Stockholders have the right to vote for board of directors
Dividends are not tax-deductible
Stockholders have to be kept happy.
The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm’s profits through dividends, if offered by the firm’s board of directors.
Common stock
Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold.
Preferred Stock
A corporate certificate indicating that a person has lent money to a firm.
Bond
The exact date the issuer of a bond must pay the principal to the bondholder.
Maturity date
The payment the issuer of the bond makes to the bondholders for use of the borrowed money.
Interest
Advantages of bonds
Bondholders don’t have ownership the company
Bond interest is tax deductible
Bond payments are temporary
They can repaid prior to maturity date
Drawback of bonds
increase debt
Interest is a legal obligation
Face value must be repaid on maturity date
Bonds that are unsecured (i.e., not backed by any collateral such as equipment).
debenture bonds
sometimes called mortgage bonds, they require collateral
Secured bonds
A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond.
sinking fund
A registered representative who works as a market intermediary to buy and sell securities for clients.
stockbroker
the chance that and investment will. be worth less at some future time than it’s worth now.
investment risk
Buying several different investment alternatives to spread the risk of investing.
Diversification
The positive difference between the purchase price of a stock and its sale price.
capital gains
An action by a company that gives stockholders two or more shares of stock for each one they own.
Stock Split
Purchasing stocks by borrowing some of the purchase cost from the brokerage firm.
buying stock on margin
An organization that buys stocks and bonds and then sells shares in those securities to the public.
mutual fund
The average cost of 30 selected industrial stocks, used to give an indication of the direction (up or down) of the stock market over time.
Dow Jones Industrial Average
