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Investments > Chapter 2 Investment Alternatives > Flashcards

Chapter 2 Investment Alternatives Flashcards

0
Q

Marketable securities are classified into three categories

A
  1. Money Market 2. Capital Market 3. Derivative Market.
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1
Q

Indirect Investing

A

The buying and selling of the shares of investment companies that themselves hold portfolios of securities.

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2
Q

Major Types of Financial Assets:

Direct Investing:

A

Non-Marketable
Money Market
Capital Market
Derivatives Market

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3
Q

Major Types of Financial Assets:

Indirect Investing:

A

Investment Funds

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4
Q

Non-Marketable Investing:

A
  • Savings Deposits
  • GICs
  • Canada Savings Bonds (CSBs)
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5
Q

Money Market Investing:

A
  • Treasury Bills
  • Commercial Paper
  • Eurodollars
  • Repurchase agreements
  • Banker’s Acceptances (B/As)
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6
Q

Capital Market Investing:

A
  • Fixed Income: Government bonds, Government agency bons (ex. Ontario Hydro), Corporate Bonds
  • Equities: Preferred stock, common stock.
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7
Q

Derivatives Market Investing:

A
  • Options

- Futures Contracts

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8
Q

Investment Funds:

A

(Indirect Investing)

  • Open End: Money market mutual fund, Stock, bond, and income funds
  • Closed end.
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9
Q

Liquidity:

A

Ease with which an asset can be converted to cash. An asset is liquid if it can be bought or sold quickly with relatively small price changes.

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10
Q

Money Market Definition

A

The market for short-term, highly liquid, low-risk debt instruments sold by governments, financial institutions and corporations. Canadian government Treasury bills are an example.

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11
Q

Treasury Bill Definition

A

A short term money market instrument sold at discount by Canadian governments.

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12
Q

Capital Markets:

A

Markets for long term securities such as bonds and stocks.

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13
Q

Fixed Income Securities

A

Securities such as bonds with specified payment dates and amounts.

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14
Q

Bonds

A

Long term debt instruments representing the issuer’s contractual obligation or IOU.

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15
Q

Bond Characteristics: Par Value (Face Value):

A

The redemption value of a bond paid at maturity, generally $1,000.

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16
Q

Zero Coupon Bond

A

A bond sold with no coupons at a discount and redeemed for face value at maturity. Also known as a strip bond.

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17
Q

Treasury Bond

A

Long term bonds sold by the US government.

18
Q

Call provision

A

Gives the issuer the right to call in a security and retire it by paying off the obligation.

19
Q

Retractable Bonds Definition:

A

Bonds that allow the bondholder to sell the bonds back to the issuer at predetermined prices at specified times.

20
Q

Extendible Bonds Definition:

A

Bonds that allow investors to extend the maturity date of the bond.

21
Q

Convertible Bonds:

A

Bonds that are convertible, at the holder’s option, into shares of common stock of the same corporation at predetermined prices.

22
Q

Types of Bonds:

A

Government Bonds

Corporate Bonds

23
Q

Corporate Bonds Definition

A

Long term debt securities of various types sold by corporations.

24
Q

Senior Securities Definition:

A

Those securities that are senior, because they are ahead of common and preferred stock in terms of payment in case of liquidation or bankruptcy.

25
Q

Debenture Definition:

A

An unsecured bond backed by the general financial worthiness of the firm.

26
Q

Bond rating:

A

Letters assigned to bonds by rating agencies to express the relative probability of default.

27
Q

Asset- Backed Securities Definition (ABS)

A

Securities issued against some type of asset-linked debts bundled together, such as credit card receivables or mortgages.

28
Q

Preferred Stock

A

A hybrid security that is part equity and part fixed income because it increases in value but also pays a fixed dividend.

29
Q

Common Stock Definition:

A

An equity security representing the ownership interest in a corporation.

30
Q

Book Value

A

The accounting value of common equity as shown on the balance sheet.

31
Q

Dividends:

A

Cash payments declared and paid by corporations to stockholders.

32
Q

Dividend Yield:

A

The income component of a stock’s return, generally calculated by dividing the current annual dividend by the prevailing market price.

33
Q

Payout ratio:

A

Percentage of a firm’s earnings paid out in cash to its stockholders, calculated by dividing dividends by earnings.

34
Q

Stock Dividend:

A

Payment by a corporation of a dividend in shares of stock rather than cash.

35
Q

Stock Split

A

Division of a corporation’s stock by issuing a specified number of new shares while simultaneously lowering the face value of outstanding shares.

36
Q

P/E Ratio:

A

Ratio of stock price to earnings, using historical, current or estimated data. Also known as earnings multiplier.

37
Q

Derivative Securities:

A

Securities that derive their value in whole or in part by having a claim on some underlying security.

38
Q

Warrant:

A

An option created by a corporation to purchase a stated number of common shares a specified price within a specified time (Often several years).

39
Q

Options:

A

Rights to buy or sell a stated number of shares of stock within a specified period at a specified price.

40
Q

Puts

A

Options to sell a specified number of shares of stock at a stated price within a specified period.

41
Q

Calls

A

Options to buy a specified number of shares of stock at a stated price within a specified period.

42
Q

LEAPs

A

Options to buy (calls) or sell (puts) securities with longer maturity dates of up to several years, also known as long term options.

43
Q

Futures Contract

A

Agreement providing for the future exchange of a particular asset between a buyer and seller at a specified date for a specified amount.

Investments (2 decks)

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