Chapter 2 - Investing in Stocks

Question 1

Capital Gain

Answer 1

when investors sell stocks for more than they paid

Question 2

Capital loss

Answer 2

when a stock sells for less than an investor paid for it

Question 3

dividend

Answer 3

the amount of profit a company pays to its shareholders

Question 4

stop loss order

Answer 4

an order put in to sell the stock when the price decreases to a certain amount

Question 5

market order

Answer 5

an order put in to buy or sell at the best possible price

Question 6

limit order

Answer 6

an order to buy or sell a specific amount at a specific price

Question 7

odd lot

Answer 7

stock order that isn’t a multiple of 100 shares. commissions are higher for odd lots

Question 8

round lot

Answer 8

an order that’s a multiple of 100 shares

Question 9

floor broker

Answer 9

person who actually executes a stock order on the exchange floor

Question 10

market maker

Answer 10

a dealer a particular OTC stock and who is similar to a NYSE specialist

Question 11

two dollar broker

Answer 11

an independent member of the stock exchange who is not connected with the firm. used when a brokerages floor broker is too busy

Question 12

specialist / designated market maker

Answer 12

a broker who specializes in trading specific stocks at the trading posts

Question 13

horizontal merger

Answer 13

two or more companies with the same type of business are combined

Question 14

vertical merger

Answer 14

merging with companies at other levels of the same business in order to be guaranteed a supplier or customers

example : a dairy company buying farms or Nike buying Reebok

Question 15

conglomerate merger

Answer 15

a merger between two companies with unrelated product lines

example : Nike buying Beats

Question 16

hostile takeover

Answer 16

occurs when a corporation, an investor, or a group of stockholders gains controlling interest in another corporation

Question 17

retained earnings

Answer 17

when a company retains part of their profits and reinvests it in the corporation.

Question 18

preferred stock

Answer 18

stockholders receive special treatment because company dividends to them before being laid to common stockholders. if the company went bankrupt, preferred stockholders would receive payment first.

Question 19

treasury stock

Answer 19

shares repurchased by a corporation.

Question 20

authorized shares

Answer 20

shares a corporation is allowed to issue

Question 21

crash of ‘29 and ‘87

Answer 21

crash of ‘29 called Black Thursday created new laws

Question 22

warrants

Answer 22

a long term privilege similar to stock rights that allow the public to buy additional shares at a set price

Question 23

day order

Answer 23

an order put in that only lasts a day

Question 24

good till canceled order

Answer 24

an order that will stand until it’s filled or canceled

Question 25

ticker tape

Answer 25

an electronic display of stock transactions that flashes across a screen in most brokerages

Question 26

market risk

Answer 26

a risk that affects the prices of all stocks simultaneously

examples :

• change in interest rates
• sudden or unexpected event

Question 27

company risk

Answer 27

a risk that affects the stock price of one company

examples :

• demand goes up = price goes up
• vice versa

Question 28

SEC

Answer 28

watch dog agency that enforces federal laws pertaining to the stock market. breaking the rules results in harsh punishment.

Question 29

proxy

Answer 29

is a form giving another person authority to vote on behalf of the shareholder

Question 30

board of directors

Answer 30

chief governing body of a corporation

Question 31

annual report

Answer 31

financial report published once a year by a corporation and distributed to its stockholders

Question 32

stock

Answer 32

represents ownership in a corporation that’s represented by shares. each share of stock has a stake in the corporations earnings and assets

Question 33

NYSE

Answer 33

oldest and most popular stock exchange. is an indicator for the stock market.

Question 34

NASDAQ

Answer 34

an organization of dealers that is self regulated and required dealers to follow reputable business practices

Question 35

OTC

Answer 35

over the counter market that is a way of trading stocks rather than a place for trading stocks. stocks are traded by dealers in a complex telephone and computer network, rather than in a trading floor

Question 36

AMEX

Answer 36

American stock exchange . stocks are listed smaller, new ones with smaller trading volume

Question 37

IPO

Answer 37

initial public offering. first time a brand new company decides to go public. it’s handled by an investment banker or brokerage firm. a tombstone ad notifies investors about the IPO

Question 38

Blue chip stocks

Answer 38

Stock of a well-established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times

examples : coca-cola, GE, Disney, GM

Question 39

income stocks

Answer 39

stocks of corporations whose dividends are relatively large and stable

Question 40

cyclical stocks

Answer 40

stocks that go with the flow of the economy. if the economy does bad, they do bad and vise versa

Question 41

defensive stocks

Answer 41

A stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market

Question 42

growth stocks

Answer 42

stocks that retain most of their earnings

Question 43

FED functions

Answer 43

regulates banks throughout the country. controls currency and money supply. raises or lowers discount rate. buys government securities that puts new money into system. and vise versa.