Stocks/Bonds/Dividends/Market Caps Flashcards
What are three causes of interest rates?
Technical progress, time preferences, and round-aboutness
What is compounding?
Earning interest on previously earned interest.
What is a discount bond?
Bond bought at a discount which pays face value when it matures
What is a coupon bond?
bond issued with detachable coupons that must be presented to the issuer for interest payments until its maturity. Usually the coupon is paid semi-annually.
What is the federal funds rate and how long does it take to mature?
It is the shortest term interest rate in the federal government, and takes one day to mature.
What is the main difference between a consol and an annuity?
A consol pays a constant quantity (coupon) forever; whereas an annuity pays a constant quantity until a fixed time, T, called the maturity date.
What is the forward rate?
The expected rate (yield) on a bond several months or years from now.
How is the real interest rate calculated?
Subtracting the inflation rate from the nominal rate.
Irving Fisher’s Debt Deflation theory starts from what observation?
Deflation redistributed real wealth from debtors to creditors.
How is market capitalization calculated?
Price per share multiplied by the number of shares of common stock.
What’s a corporation?
A body legally authorized to act as a single person, an artificial person created by royal charter, prescription, or act of legislature, and having authority to preserve certain rights in perpetual succession.
How is a corporate board of directors elected?
Shareholders have one vote per share to elect the board
How is the CEO elected?
Once the shareholders have elected the board, the board then elects the CEO.
How do I determine my ownership in a corporation?
It equals my shares divided by total shares outstanding
Why does the stock price drop when the dividend pays out?
Because the money is gone. The company gave the money to shareholders.
What is the difference between common and preferred stock?
Common: dividend is at discretion of firm, subject to legal restrictions, and can grow through time.
Preferred: dividend also at discretion of firm, but firm can only pay common dividend if preferred has been paid, and dividend is fixed.
How do corporations raise money?
Earnings (slow), bank loan, debt or corporate bonds, issue shares (difficult, dilutes voting right s, and is last resort)
