Vocabulary

Question 1

Common Stock

Answer 1

equity ownership in a corporation

Question 2

Preferred Stock

Answer 2

represents equity ownership in a corporation but usually does not have the same voting rights or appreciation potential as common stock.

• just as with debt securities, the rate of return on a preferred stock is fixed rather than subject to variation as with common stock
• does not have the same growth potential as common stock

Question 3

Capital Appreciation

Answer 3

An increase in the market price of securities

Question 4

Proxy

Answer 4

An absentee ballot

-they have the right to sell or give away their shares without the permission of the corporation

Question 5

Cumulative Preferred Stock

Answer 5

accrues payments due its shareholders in the event dividends are reduced or suspended

Question 6

Callable (or redeemable) Preferred

Answer 6

when a company can buy back from investors at a stated price after a specified date

Question 7

Convertible

Answer 7

if the owner of a preferred stock can exchange the shares for a fixed number of shares of common stock of the issuing coporation

Question 8

American Depository Receipts (ADR)

Answer 8

A negotiable security that represents a receipt for shares of stock in a non US. Corporation, usually from 1-10 shares

Question 9

Currency Risk

Answer 9

the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar

Question 10

Emerging Markets

Answer 10

markets in lesser developed countries
-low levels of income, low levels of equity capitalization,questionable market liquidity, potential restrictions on currency conversion, high volatility, prospects for economic growth and development,

Question 11

Developed Markets

Answer 11

markets associated with countries that have highly developed economies with stable political and social institutions
-large levels of equity capitalization, low commission rates, few if any currency conversion restrictions, highly liquid markets

Question 12

Country Risks

Answer 12

a composite of all the risks of investing in a particular country

Question 13

Real Estate Investment Trust (REIT)

Answer 13

a company that manages a portfolio of real estate investments to earn profits for shareholders.

• normally publicly traded, and serve as a source of long term financing for real estate projects
• trades on exchanges and otc, not mutual funds, an owner holds undivided interest in a pool o real estate investments

Question 14

Equity REITS

Answer 14

own commercial property

Question 15

Mortgage REITs

Answer 15

own mortgages on commercial property

Question 16

Hybrid REITS

Answer 16

both commercial properties and mortgages on commercial properties

Question 17

Preemptive Rights

Answer 17

entitle existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public

Question 18

Rights Offering

Answer 18

allows stockholders to purchase common stock below the current market price

Question 19

Warrant

Answer 19

a certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price

Question 20

Bond

Answer 20

certificate representing the corporation’s indebtedness.
-for taxation purposes, all corporate bond interest is fully taxable as ordinary income on both federal and state tax returns

Question 21

Municipal Bonds

Answer 21

Bonds issued from state and local political entities

-a security issued by a state or other municipality

Question 22

Secured Debt Securities

Answer 22

securities that are backed by various kinds of assets of the issuing corporation

Question 23

Unsecured Debt Securities

Answer 23

securities that are backed only by the reputation, credit record, and financial stability of the corporation

Question 24

Guaranteed Bond

Answer 24

a bond that is guaranteed as to payment of interest, or both principal and interest, by a corporate entity other than the issuer

Question 25

General Obligation Bonds (GO)

Answer 25

bonds that are backed by a pledge of the issuer’s full faith and credit for prompt payment of principal and interest

Question 26

Revenue Bond

Answer 26

bonds that are payable from the earnings of a revenue-producing enterprise, such as a water, sewer, electric or gas system, toll bridge, airport, college dormitory, or other income producing facility

Question 27

Treasury Bills

Answer 27

a direct short term debt obligations of the US government

• only bills that are issued at a discount
• only treasury security issued without a stated interest rate
• highly liquid
• no credit risk
• interest is exempt from state income tax

Question 28

Treasury Inflation Protection Securities (TIPS)

Answer 28

a special type of treasury issue, it protects investors against purchasing power risk

Question 29

Current Yield

Answer 29

Return divided by Investment

Question 30

Money Market

Answer 30

the market for buying and selling short term loan-able funds in the form of securities and loans.

• the buyer of a money market instrument is the lender o the money; the seller of a money market instrument is the entity borrowing the money
• they are safe and typically has a maturity date of one year or less

Question 31

Negotiable Certificates of Deposit

Answer 31

• negotiable cds do not have a prepayment penalty
• FDIC insurance applies up to $250k
• 360 day jumbo cds pay interest semi-annually

Question 32

Commercial Paper

Answer 32

a money market instrument that is short term unsecured paper issued by corporations primarily to raise working capital.

Question 33

London Interbank Offered Rate (LIBOR)

Answer 33

the world’s most widely used benchmark for for short term interest rates

Question 34

Eurodollars

Answer 34

US dollars deposited in banks outside the US, that is, the deposits remain denominated in US dollars rather than the local currency.
-pays in US dollars

Question 35

Eurobond

Answer 35

long term debt instrument issued and sold outside the country of the currency in which it is denominated
-pays in foreign currency