Equity Investments

Question 1

Debt Securities

Answer 1

Promise to repay borrowed funds - bonds

Question 2

Publicly Traded Securities

Answer 2

Traded on exchanges or thru dealers, subject to regulations

Question 3

Equity Securities

Answer 3

Represent ownership positions - common, preferred, warrants

Question 4

Private Securities

Answer 4

Not traded in public markets, illiquid, not subject to regulations

Question 5

Derivative Contracts

Answer 5

Value depends on (or derives from) the value of other assets, i.e., equities, equity indexes, debt, debt index, other financial contracts; gold, oil, wheat

Question 6

Alternative Investment

Answer 6

A financial asset that does not fall into one of the conventional investment categories
* Private Equity or Venture Capital
* Hedge Funds
* Managed Futures
* Art and Antiques
* Collectibles
* Equipment
* Commodities
* Derivative Contracts

(illiquid, due diligence, sell at discount)

Question 7

DRP/DRIP

Answer 7

Dividend Reinvestment Plan;
An investment strategy that allows shareholders to automatically reinvest their dividend earnings to purchase more of the same company’s stock;
With a broker-operated DRIP, brokers purchase shares on the open market.

Question 8

Spot Markets

Answer 8

Markets for immediate delivery [fowards, futures, options]

Question 9

Primary Market

Answer 9

For newly issued securities, private placement, shelf registration, dividend reinvestment plan (DRP/DRIP)

Question 11

Secondary Market

Answer 11

• Where investors buy and sell
  securities
• Trades take place between other investors or traders, rather than from the companies that issue the securities
• It allows investors to trade securities freely without interference from those who issue them

Question 12

Capital Markets

Answer 12

Venues where funds are exchanged between suppliers and those who seek capital. Suppliers in capital markets are typically banks and investors. Those who seek capital are businesses, governments, and individuals.

Capital markets are used to sell financial instruments, including equities and debt securities

Question 13

Traditional Investment

Answer 13

Traditional Investments include:
* Stocks
* Bonds
* Cash

Question 14

Swaps

Question 15

Securities

Answer 15

tradable financial instruments or assets that have economic value. They represent ownership in a corporation (stocks), a creditor relationship (bonds), or rights to ownership (options)l.

Common examples include:
* Stocks
* Bonds
* Mutual Funds
* ETFs
* Derivatives

Question 16

Alternative Investment Market (AIM)

Answer 16

A sub-market of the London Stock Exchange (LSE) that is designed to help smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility than the main LSE stock market

Question 17

Going Concern Assumption

Answer 17

The assumption that a company will continue to operate as a business, as opposed to going out of business

Question 18

Liquidation Value

Answer 18

The estimate of what assets of the firm would bring if sold separately, net of the company’s liabilities

Question 19

Fair Market Value

Answer 19

The price at which a hypothetical willing, informed and able seller would trade an asset to a willing, informed, and able buyer

Question 20

Investment Value

Answer 20

The value of a stock to a particular buyer. Investment value depend on the buyer’s specific needs and expectations, as well as perceived synergies with existing buyer assets.

Question 21

Valuation

Answer 21

The process of estimating the value of an asset by:

1. Using a model based on the variables the analyst believes influence the fundamental value of the asset
2. Comparing it to the observable market value of “similar” assets

Question 22

The general steps in the equity valuation process are:

Answer 22

1. Understand the business
2. Forecast company performance
3. Select appropriate valuation model
   4.Convert the forecasts into a valuation
4. Apply the valuation conclusion

Question 23

The most direct use of equity valuation:

Answer 23

is to guide the purchase, holding, or sale of stocks. Valuation is based on both a comparison of the intrinsic value of the stock with its market price and a comparison of its price with that of comparable stocks

Question 24

Elements of Industry Structure as developed by Professor Michael Porter

Answer 24

1. Threat of new entrants in industry
2. Threat of Substitutes
3. Bargaining Power of Buyer
4. Bargaining Power of Suppliers
5. Rivalry Among Existing Competitors