Investing in Stock Flashcards
Stocks
represent ownership of a company
Privately held company
a relatively small number of stockholders and the stock is not publicly traded
Public company
- Through Initial Public Offering (IPO): a company’s first sale of stock to the public, a private company becomes a public company
- Subsequent sale of stocks through seasoned offering
equity
the value of shares issued by a company
Preferred stock
-A hybrid security carries the characteristics of debt and equity
-Pays a fixed dividend as a percentage of par value
-Has priority over common shares for payment of dividends
-Terms are negotiable
-Carries no voting rights
-Cumulative feature:
Unpaid cash dividends accumulate and must be paid before any cash dividends are paid to the common stock holders.
-Conversion feature:
Can convert for shares of common stock and provide a growth potential
Common Stock
-Distributions by company is discretionary
-Pay dividends as declared by the board of
directors
-Price varies reflecting the value of the company
-Shareholders’ Rights:
@voting rights to elect the board of directors @only a residual claim on assets and earnings
@all other claims must be paid before shareholders can receive any distribution
@Shareholders are the last to receive any money in a bankruptcy
Why company s issue common stock?
- To raise capital
- No need to repay the money
- Dividends are not mandatory
- In return for investing in the company, stockholders have voting rights to select board of directors and decide other major company policies.
Bull Market
A period in which stock prices in general are consistently rising
Bear Market
A period in which stock prices on multiple broad market indexes have decreased 20% or more over at least a two-month period
Market Index
-overall summary of a specific market or sector of a market
-notices trends
-as a benchmark to compare the performance
of other stocks or mutual funds
calculation methods for market indexes
-Price-weighted
-Value-weighted (most used)
-Equal-weighted
Examples:
-Dow Jones Industrial Average (DJIA)
-S&P 500 – Standard & Poor’s 500
-Nasdaq
Market order
Buy or sell stocks at current market price
Limit Order
Lets you set a maximum or minimum price
before your stock trade gets converted to a market order
Day Order
Expires at the end of the trading day if it is not filled
Good-’til-Canceled Order
Your order will not expire for (typically) five days