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3-22. BA FM 34P > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

A company goes public when shares are offered to the public for the first time

A

Initial Public Offering (IPO)

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2
Q

Risks of Share Ownership

A
  • Price risk
  • Liquidity Risk
  • Issuer Risk
  • Foreign Exchange Risk
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3
Q

investors can lose capital even when dividends are paid

A

Price Risk

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4
Q

Shares may be difficult to sell at a reasonable price or sold quickly enough to prevent a loss

A

Liquidity risk

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5
Q

Issuing company may collapse – ordinary share may become worthless

A

Issuer Risk

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6
Q

Currency price movements

A

Foreign exchange risk

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7
Q

Classification of Equity Securities

A
  • Investment in Subsidiary
  • Investment in Associate
  • Other equity securities
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8
Q

ownership interest is more than 50%

A

Investment in Subsidiary

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9
Q

when the investor has significant influence over the investee

A

Investment in Associate

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10
Q

without controlling or significant influence in the investee’s equity

A

Other equity securities

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11
Q

Designation of Investment in Equity Securities

A
  • Investment security to profit or loss
  • Investment in equity through other comprehensive income
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12
Q
  • acquired for the purpose of selling or repurchasing it in the near term

-part of the portfolio of identified financial instruments that are managed together

  • debt and equity securities that are actively traded by the entity
A

Investment security to profit or loss

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13
Q

purchased strategically to realize profit from the increase in the value of these instrument

A

Investment in equity through other comprehensive income

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14
Q

Initial Measurement of Equity Investment (Investment security to profit or loss (trading))

A
  • Recorded at acquisition cost.
  • Any cost incurred related to the acquisition of the instrument is recognized outright as an expense
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15
Q

Initial Measurement of Equity Investment (Investment in equity through other comprehensive)

A
  • Measured at historical cost plus any transactions costs that are directly attributable to the acquisition costs
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16
Q

Trading Costs

A
  • Broker’s Commission
    *full-service broker
    *discount broker
  • Bid-Ask Spread
  • Price concession
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17
Q

instructions of an investor to the broker on how he wants to trade

A

Orders

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18
Q

buy or sell orders that are to be executed immediately at current prices

A

Market Orders

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19
Q

place orders specifying prices at which they are willing to buy or sell a security

A

Pre-Contingent Orders

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20
Q

may buy at or below a stipulated price

A

Limited buy order

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21
Q

sell if and when the stock price rises above specified limit

A

Limited sell order

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22
Q

a collection of limit orders waiting to be executed

A

Limit order book

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23
Q

the stock is to be sold if its price falls below a stipulated level

A

stop-loss orders

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24
Q

a stock should be bought when its price rises above a limit

A

stop-buy orders

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25
taking advantage of broker’s call loans
buying on margin
26
debt financing
Broker's loan
27
ratio of the net worth or the equity value of the account to the market value of the securities
Percentage margin
28
maintenance level set by the broker wherein the collateral stock is sufficient to cover the loan from the broker
Maintenance margin
29
requires the investor to add new cash or securities to the margin account
Margin call
30
- An investor have Php 6,000 and is planning to purchase Php 10,000 worth of stocks. (100 shares at Php 100 per share). - The remaining Php 4,000 will be borrowed from a broker. Balance sheet will be: Assets: C. Stock Php 10,000.00
Liabilities and capital: Loan from broker =Php 4,000 Capital/Equity = 6,000 Total =Php 10,000.00 Percentage Margin = Equity / value of Stock = 6,000 / 10,000 = 0.60 or 60%
31
If shares are sold then capital gains are ________
realised
32
If shares are not sold then capital gains are __________
unrealised
33
When share prices rise above the price paid when they were originally purchased:
Capital gains
34
Regular, ongoing income a shareholder receives:
Dividends
35
Earnings in Stock
1. Capital Appreciation 2. Dividends
36
increase in the market value of stocks
Capital Appreciation
37
distribution of income
Dividends
38
distribution of cash
Cash Dividends
39
issuing more shares to existing holders
Stock Dividends
40
splits into smaller sizes, no change in wealth
Stock Dividends
41
opposite of pay-out ratio. The portion of income that does not get paid out as dividends. Retention ratio.
Plowback ratio
42
cash dividends/net income
Pay-out ratio
43
Formula of Earnings Per Share
Net Income – Preferred Dividends/Average outstanding Common shares
44
the time period an investment is held or is the period in which you own an investment
Holding Period
45
the return for the period of investment
Holding period return
46
Formula of HPR
ending value of investment/ beginning value of investment
47
formula of HPY
= HPR – 1
48
Entitles to profits (dividends) as a residual claimant and usually with voting rights Trades more frequently in the exchange compared to preferred stocks.
Common Stocks
49
Represents claim on profits before common stock. (gets dividends first) Usually with a fixed dividend May or may not have voting rights
Preferred Stocks
50
The place where publicly listed stocks are bought and sold
Stock Market
51
– long record of earnings and dividend payments - low risk and modest but dependable return
Blue Chip
52
– long record of higher than average earnings and retains more for the growth of the business -faster growth than the industry and economy as a whole
Growth
53
- higher than average dividend payment ratio - low risk and moderate return
Income
54
movement of earnings and prices in accordance with the business cycle
Cyclical
55
recession-resistant unaffected by downswings in the business cycle
Defensive
56
no record of good earnings
Speculative
57
Types of Common Stock Traded in Stock Exchange (Industry/Sector)
Financial Sector Industrial Sector Holding Firms Sector Property Sector Services Sector Mining and Oil Sector
58
- basing investment decision on the fundamental economic, industry and company factors - Uses economic and accounting Data
Fundamental analysis
59
- developing trading rules based on past price movements of individual stocks and the whole stock market. - Uses price and volume data
Technical Analysis
60
The price level wherein the price tends to support as it falls lower due to an increase in demand and which may lead to a possible reversal in price to the upside.
Support
61
The level wherein the price finds resistance as it rises and which may lead to a possible reversal in price to the downside.
Resistance
62
The movement of chart patterns (waves) in the same direction bounded by support and resistance
Trend Analysis
63
- Buy stocks for the long term - Looks for undervalued stocks or formations stocks with growth potential - Usually buys when the stock is going trending lower (accumulation) -Uses Fundamental Analysis Passive
INVESTOR
64
- Buy or sells stocks on a short term - Looks for charts with setup - Usually buys when the stocks Is higher (momentum) -Uses more on Technical Analysis - Active
TRADER
65

3-22. BA FM 34P (5 decks)

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