Chapter 3 Terms

Question 1

Descriptive Information

Answer 1

factual data on past behavior of economy, market, industry company or given investment

Question 2

Analytical Information

Answer 2

available current data in conjunction with projections and recommendations about potential investments

Question 3

pump-and-dump

Answer 3

promoters who hype a stock and sell out on the inflated prices

Question 4

get-rich-quick

Answer 4

promoters selling worthless investments to naïve buyers

Question 5

Protect yourself by asking these 5 questions

Answer 5

1. Is the seller licensed?
2. Is the investment registered?
3. How do the risks compare to the potential rewards?
4. Do you understand the investment?
5. Where you can turn for help?

Question 6

What do stock market averages and indexes do?

Answer 6

measure the general behavior of stock prices over time; gauge general market conditions

Question 7

Dow Jones Industrial Average (DJIA)

Answer 7

• Most popular average
• Comprised of 30 high quality, diversified stocks
• Tracks overall market activity

Question 8

NYSE Composite Index

Answer 8

Includes all stocks listed in NYSE

Question 9

Bond Yields

Answer 9

Total return on bond purchased at current price and held to maturity

Question 10

Stockbrokers

Answer 10

Act as intermediaries between buyers and sellers of securities. Paid by commission

Question 11

Premium Discount Broker

Answer 11

• Low commissions
• Limited research or investment advice

Question 12

Full-Service Broker

Answer 12

• Offers broad range of services and products
• Provides research and investment advice

Question 13

Basic Discount Brokers

Answer 13

• Main focus is executing trades electronically online
• No research or investment advice
• Commissions are at deep-discount

Question 14

Custodial Account

Answer 14

brokerage account for a minor that requires parent or guardian to handle transactions

Question 15

Cash account

Answer 15

brokerage account that can only make cash transactions

Question 16

Margin account

Answer 16

brokerage account in which the brokerage firms extends borrowing privileges

Question 17

Wrap account

Answer 17

account that shifts investment decisions to a professional money manager and charges a flat annual fee

Question 18

Odd-lot Orders

Answer 18

Orders for less than 100 shares of stock

Question 19

Round-lot Orders

Answer 19

Orders for a 100-share unit or multiples thereof

Question 20

Market Orders

Answer 20

• Orders to buy or sell stock at best price available when order is placed
• Fastest way to fill order

Question 21

Limit Orders

Answer 21

• Order to buy at or below a specified price or to sell at or above a specified price
• If price limits are not met, order is not filled

Question 22

Fill-or-Kill Orders

Answer 22

Limit orders which is canceled if not filled immediately

Question 23

Day Orders

Answer 23

Limit orders that expires at end of the day if not filled

Question 24

Good-’til-Canceled (GTC) Orders

Answer 24

Limit orders that remains in effect for six months unless filled, canceled, or renewed

Question 25

Stop-Loss (Stop) Orders

Answer 25

• “stop your losses”
• “Suspended” order is placed to sell a stock if price reaches or falls below a specified level

Question 26

Stop-Limit Orders

Answer 26

• Orders to sell stock at or better than specified price
• Prevents sales at undesirable price

Question 27

Mediation

Answer 27

Informal, voluntary dispute resolution process between a customer and a broker

Question 28

Arbitration

Answer 28

Formal dispute resolution process that requires customer and broker to present arguments before a panel