Unit 1: What Is A Security Flashcards
What kind of security/investment does not confer ownership?
Debt
Security (def)
An investment that represents either an ownership stake or debt stake in a company
Stock (def)
Represents equity or ownership in a company.
What is acquired when buying a company’s bonds?
Debt OR debt security
Debt Investment (def)
A loan to a company in exchange for interest income and the promise to repay the loan at a future maturity date
Bonds (def)
A loan to a company
Where is the Over-the-Counter (OTC) Markets physical location?
Trick question; no physical location. Linked by computer terminals to FINRA member firms across the country.
Stock exchange (def)
An auction market where buyers and sellers are matched by a specialist (designated market maker) who maintains a fair and orderly market for a particular set of stocks.
What is disclosed in a published balance sheet?
Composition of total capitalization (equity and debt)
What does a balance sheet summarize?
Assets, liabilities, equity
Assets (def)
What the company owns; cash in the bank, accounts receivable, investments, property, inventory
Liabilities (def)
What the company owes: accounts payable, short and long term debt, obligations
Equity (def)
Excess of the value of assets over the value of liabilities (AKA net worth).
Net Worth Equation
ASSETS - LIABILITIES = NET WORTH
ASSETS = LIABILITIES + NET WORTH
Why does a company issue stock?
As a primary means of raising business capital.
