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Personal Financial Planning > Unit 12 > Flashcards

Unit 12 Flashcards

1
Q

An investment strategy where money is spread to many assets to reduce risk

A

Diversification

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2
Q

Deciding proportion of portfolio to invest each asset class

A

Asset Allocation

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3
Q

Comparing performance portfolio against established benchmark/index

A

Evaluating against a benchmark

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4
Q

Indicator shows average price movements for group of securities; tracks performance particular market segment

A

Index

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5
Q

30 very large company stocks

A

Dow Jones Industrial Average

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6
Q

500 largest US companies

A

S&P 500

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7
Q

Over the counter stocks, includes more small companies

A

NASDAQ

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8
Q

Identify investments and asset classes undervalued short run; make returns buying underpriced and selling overpriced

A

Active Investors/ Day Trading

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9
Q

Long term stock investing

A

Passive Investing

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10
Q

Prices adjust reflect publicly available info/ theory

A

Market Efficiency

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11
Q

Purchase proven stock and hold; for long term profit

A

Buy and hold

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12
Q

Funds mimic indexes

A

Indexing

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13
Q

Investors receive dividends as additional stock

A

Dividend reinvestment plan (DRIP)

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14
Q

Investor selects investments have cash flows

A

Maturity Matching

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15
Q

Business org exists legal entity separate 4rm owners

A

Corporation

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16
Q

Sell ownership 2 gain funds

A

Why issue stocks?

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17
Q

Common shareholders right: share firms assets and income after all other claim holders are paid

A

Residual Claim

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18
Q

Right vote members to board of directors

A

Voting Rights

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19
Q

Right corporate shareholders limits potential losses value of shares

A

Limited Liability

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20
Q

Right; shareholders maintain proportionate ownership when company issues additional shares of stock

A

Preemptive right

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21
Q

Shareholder gets # shared proportion number shares already held

A

Stock splits

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22
Q

Pays investors regular dividend

A

Income stock

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23
Q

Compensates investors through increased value 4 shares over time

A

Growth Stock

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24
Q

Large, stable, mature company stock

A

Blue Chip Stock

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25
Q

Stock has above-average sensitivity 2 business cycle

A

Cyclical Stocks

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26
Q

Relatively insensitive to business cycle

A

Defensive Stocks

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27
Q

Measure risk of company’s stock

A

Beta

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28
Q

Value stock current market prices; calculated current market price times the number of sheared outstanding

A

Market Capitalization

29
Q

Company profitability equal after-tax net income/ number of shares outstanding

A

Earnings Per Share (EPS)

30
Q

Future earnings potential: market price/ (EPS)

A

Price to earnings (P/E) ratio

31
Q

Long-term, interest bearing debt securities: help finance long-term assets/operations

A

Corporate Bonds

32
Q

Interest exempt state local income tax.

A

U.S. Treasury Bonds

33
Q

Interest exempt from federal tax

A

Municipal Bonds (Muni)

34
Q

Interest principal backed by assets/future cash flows as collateral

A

Secured Bond

35
Q

Interest payments adjusted according to current market

A

Floating-rate bond

36
Q

Interest rate tied to market index

A

Indexed bond

37
Q

U.S. government bonds w/ face value adjusted annually for inflation: investors earn inflation-adjusted rate of return

A

Treasury Inflation-Protected Securities

38
Q

Medium-or-high-grade bond low risk default

A

Investment-grade bonds

39
Q

Bond pays higher rate of return; has high risk default and lower liquidity

A

High yield/junk bond

40
Q

Document summarizes financial information about stock or bond and the issuing company for potential investors

A

Prospectus

41
Q

Person/entity manages assets on behalf of another

A

Trustee

42
Q

Dollar amount bondholder receive at bonds maturity date

A

Face value

43
Q

Date when bond comes due

A

Maturity Date

44
Q

Annual rate of interest on bond: quoted as percentage of face value

A

Coupon Rate

45
Q

Annual dollar amount paid in interest on bond, equal to coupon rate times face value

A

Coupon Payment

46
Q

Term allows bond issuer buy back bond before maturity date

A

Call provision

47
Q

Annualized return bond, held to maturity and all interest payments are reinvested at the same rates

A

Yield to maturity

48
Q

Initial value assigned shares of preferred stock issuance used calculate dividend payment

A

Preferred stock per value

49
Q

Constant cash flow

A

Perpetuity

50
Q

Issuer has right to buy back shares. Company pay higher dividend rate

A

Callability

51
Q

Holder receive past unpaid dividends before dividends paid common stock

A

Cumulative Preferred Stock

52
Q

Dividend tied market interest rate

A

Adjustable-rate preferred stock

53
Q

Convert preferred shares common shares under certain conditions

A

Convertibility

54
Q

Stocks and bonds sold public for first time

A

Primary Market

55
Q

Stocks bonds traded between investors

A

Secondary Market

56
Q

First stock offering to the public

A

Initial Public Offering (IPO)

57
Q

Physical place where securities traded

A

Securities Exchange

58
Q

Electronic trading securities through securities dealers

A

Over-the-counter (OTC) market

59
Q

Security approved bought or sold on particular exchange

A

Listed security

60
Q

Price offered potential buyer

A

Bid price

61
Q

Price requested seller

A

Ask price

62
Q

Last price stock sold

A

Close price

63
Q

Request buy stock price up to given maximum or sell stock at any price above a given minimum

A

Limit Order

64
Q

Buy stock at market price

A

Market order

65
Q

Buy sell shares of stock when market price reaches certain level

A

Stop order

66
Q

Investor borrows stock from broker, sell stock, and later byes stock on the market to replace borrowed stock

A

Selling short

67
Q

Borrowed funds from broker to purchase stock

A

Buying on margin

68
Q

Brokerage firm holder of margin account add money to account to maintain required minimum

A

Margin call

69
Q

Trading based on company information not available to public.

A

Insider trading

Personal Financial Planning (9 decks)

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