Chapter 2 - Types, Uses and Tax of Investment Vehicles Flashcards
Common Stock
Shares representing ownership in a corporation, typically entitling the holder to vote and receive dividends.
Capitalization
The total value of a company’s outstanding shares, indicating the overall market value of the company.
Preferred Stock
Shares that have priority over common stock in terms of dividend payments and assets upon liquidation but usually do not have voting rights.
American Depositary Receipts (ADRs)
Securities that represent shares in a foreign company but are traded on U.S. financial markets.
Exchange Traded Funds (ETFs)
Investment funds that are traded on stock exchanges much like stocks, and track the performance of an index or a basket of assets.
Unit Investment Trusts (UITs)
Investment companies that offer a fixed (unmanaged) portfolio of stocks and bonds for a certain period.
Mutual Funds
Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.
Hedge Funds
Private investment funds that employ a variety of strategies to achieve high returns, typically for wealthier investors.
Real Estate Investment Trusts (REITs)
Companies that own, operate, or finance income-producing real estate.
Guaranteed Investment Contracts (GICs)
Insurance contracts that guarantee return of principal plus a fixed or floating interest rate over a specified period.
Limited Partnerships
Investment vehicles that limit the liability of most of their owners to the amount of their investment.
Equity REITs
REITs that own and operate income-producing real estate.
Mortgage REITs
REITs that provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities.
Direct Participation Programs (DPPs)
Programs that offer investors direct access to the cash flow and tax benefits of the underlying investments.
Net Asset Value (NAV)
The value per share of a mutual fund, calculated by dividing the total value of all the portfolio’s assets minus liabilities by the number of shares outstanding.
Variable Annuities
Insurance contracts that provide a variable payout based on the performance of the investment options chosen.
Indexed Annuities
Annuities that tie their performance to a specified index, providing a potential hedge against inflation.
Futures Contract
A legal agreement to buy or sell a particular commodity, asset, or security at a predetermined price at a specified time in the future.
Options Contract
Contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price within a specific period.
Bonds
Fixed income investments where an investor loans money to an entity that borrows the funds for a defined period at a fixed interest rate.
Certificates of Deposit (CDs)
Savings certificates with a fixed maturity date and specified fixed interest rate that are issued by commercial banks.
Derivatives
Financial securities whose value is dependent upon or derived from, one or more underlying assets.
Asset Allocation
An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance, and investment horizon.
Financial Risk Management
The practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk.
Portfolio Management
The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.
Investment Banking
A segment of banking that helps individuals or institutions raise capital and provide financial consultancy services to them.
Corporate Finance
The area of finance dealing with the sources of funding and the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.
Public Securities
Securities such as stocks or bonds that are listed on a public exchange and available for investors to buy and sell.
Private Securities
Securities that are not listed on a public exchange and are sold directly to investors through private offerings.
Risk Capital
The money allocated for high-risk high-return investments.
Venture Capital
Financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
Taxable Equivalent Yield
A calculation that shows the return on taxable investments that would be equivalent to the return on a tax-exempt investment.
Capital Gains
Profits from the sale of property or an investment.
Dividends
Payments made by a corporation to its shareholder members, usually derived from the company’s profits.
