Econ 11
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| Why would a corporation sell stock? | To raise funds.
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| What is a share? | A portion of a stock.
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| Two ways owners can make money on stocks | 1.Dividends 2. Capital gains
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| Dividends | Profits paid out to stock holders, usually 4 times a year
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| Capital gains | Amount receive over the purchase price of a stock when it is sold.
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| Difference between income stock and growth stock | Income stock pays dividends-Growth stock reinvests dividends in purchasing more stock.
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| Difference between common stock and preferred stock | A common stock owner can vote, a preferred stock owner can not vote. A preferred stock owner gets paid first if the company goes out of business.
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| Stock split | A single share of stock splits into more than one share
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| Why would a company split their stock? | Companies split stocks when the price to buy a stock is so high few cam afford to buy it.
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| The biggest risks of buying stock are: | 1.Investment is not insured- 2.May earn less than expected 3.If company fails-stock holder gets paid after all bills are paid.
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| Stockbroker | A person who links the buyers with the sellers of stock.
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| Brokerage firm | A business that specializes in trading stocks.
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| Stock exchange | A market for buying and selling stocks and bonds
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| Biggest difference between NYSE and NASDAQ | NYSE-brick and motar building NASDAQ-electronic market (internet-telephones)
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| Day Trading | Buy stocks low, hold just for a brief time-usually less that a day, in hopes can sell high and make a profit
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| Dow Jones Industrial Average | Average value of a stocks preformance
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| How many stocks make up the Dow? | 30
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| Standards and Poors 500 | Company that tracks the preformance of 500 different stocks
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| Bear market | slugish or declinging in value
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| Bull market | strong or gaining in value
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| investment | The act of redirecting resources to create benefits for the future.
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| financial system | Network of structures and mechanisms that allow the transfer of money between savers and borrowers.
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| What are financial assets or securities? | Documents that represent claims on the property or income of the borrower.
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| Financial intermediaries | Banks, credit unions, financial companies, mutual funds, hedge funds, life insurance companies, pension funds
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| Purpose of financial intermediaries | Link borrowers and savers
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| Mutual funds | Pooled money of investors used to buy stocks and bonds etc. for the purpose of making money
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| Life Insurnace Companies | Provide financial protection for the family of the insured
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| Pension funds | Income some retires receive when they reach a certain age
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| Portfolio | Collection of financial assets
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| Liquidity | Ability to convert assets into cash
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| The riskier the investment, the ______ the return. | higher
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| What is purchased for future financial benefit? | An investment
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| Prospectus | An investment report provided by intermediaries to investors
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| Diversification | Spreading out investments to reduce risk
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| Hedge funds | Private investment organizations that employ risky strategies that often result in huge profits for investors.
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| Return | Money an investor receives above and beyond the sum invested
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| Money Market Mutual Funds | Intermediaries buy short term financial assets that yield higher interest rates than savings accounts--not FDIC insured
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| Primary Market | Market for selling financial assets that can be redeemed only by the original holder
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| Secondary Market | Market that resells financial assets
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| Capital Market | Market in which money is lent for a period longer than one year
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| Corporate Bonds | Bonds sold by corporations to help raise money for their business--moderate level of risk
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| Junk Bonds | Risky high yield bonds
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| CD's | Certificates of Deposit--Safe--FDIC Insured
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| Municipal bonds | Bonds issued by state and local governments to finance roads, bridges, etc.--considered safe investments
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| Inflation-indexed Bonds | Principal and interest are linked to the inflation rate
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| Savings Bonds | Low denomination bonds issued by the US Government-low risk
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| Two disadvantages to issuer for selling bonds | 1. Must make fixed interest payments. 2. Firm must maintain financial helath to avoid bonds being downgraded to a lower bond rating-thus making the bonds harder to sell even at a discount price
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| Reasons issuers sell bonds | 1. Rate stays the same 2. Company does not have to share profits with bond holders
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| Reasons why investors invest in bonds | Relatively safe investment
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| Three basic components of a bond | 1. coupon rate, 2. maturity date, 3. par value
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| Money Market | Market in which money is lent for periods of one year or less
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| Coupon rate | Interest rate your money will earn
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| The return on investments is closely linked to _____and______. | Risk and Reward
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| Maturity | Time at which payment to a bond holder is due
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| Par Value | amount paid at maturity
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| Issuer | Seller of a bond
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| Holder | Person who buys a bond
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| Yield | Annual rate of return on a bond if bond is held to maturity
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| Standards and Poors & Moody's | Independent firm that publishes bond issuer's credit ratings
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| Capital gains | Difference between the higher selling price and the lower purchase price
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| Put option | Contract for selling stock at a particular price until a specified future date
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| Bull market | Steady rise over time
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| Four ways to classify stocks | 1.Income stock, 2. growth stock, 3. common stock, 4. prefered stock
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| Income stock | Pays dividends
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| Growth stock | Does not pay dividends, profits reinvested in more stock
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| Common stock | Stockholder has the right to vote on company policy
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| Prefered stock | No voting rights-gets payed first in event of financial issues
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| Two ways for stockholders to make a profit | 1. Dividends 2. Capital Gains
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| Shares | A portion of a stock
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| When do stocks split? | When the purchase price becomes so high people won't buy them.
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| Nasdaq | Sells stocks and bonds over phone or internet----- National Association of Securities Dealers Automated Quotation
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| Hooverviles | Shelters made of scrap wood, old tin, and other salvaged materials--residents blamed the market crash and living conditions on Pres. Hoover
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| Speculation | Making risky investments with borrowed money in hopes of getting a big return
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| Before WWII who bought and sold stocks in the stock market? | The wealthy
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| Sabanes-Oxley Act | Reform aimed at reforming lax company accounting practices
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| Bear market | stagnate or falling for a period of time
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| Futures | Contracts to buy or sell commodities at a particular date in the future at a price specified today
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| OTC--Over the Counter Market | Stocks and bonds bought or sold from a dealer or broker over the phone or internet
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| Options | Contracts that give investors the choice to buy or sell stocks and other financial assets
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| Call Options | Contact for buying sotck at a particular price until a specified future date
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| Second largest securities market | Nasdaq-created 1971-deals with 500 world wide companies
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| Largest securities market | NYSE-deals with 30 top world wide companies
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| Brokerage Firms | Business that specialize in trading stocks
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| Stock Exchange | A market for buying and selling stocks
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| Stockbroker | Person who links buyers and sellers of stocks
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| Buying on Margin | Purchase stock for only a fraction of its price and borrowing the rest from a brokerage firm
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| Great Crash of 1929 | Collapse of stock market-one of many issues that began the Great Depression
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| Blue Chip Companies | Largest most financially sound stock companies---best known companies---found only on NYSE
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| Capital Market | Market in which money is lent for periods longer that a year
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| Capital Loss | The difference between the selling price and purchase price that results in a financial loss for the seller
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| Speculation | The practice of making high-risk investments with borrowed money in hopes of getting a big return
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| Treasury bond | United states government bond with maturity of 10 to 30 years
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| Money | Anything that serves as a medium of exchange, unit of an account or store of value
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| Medium of exchange | Anything that is used to determine value during the exchange of goods and services
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| Barter | The direct exchange of one set of goods or services for another
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| Unit of account | A means for comparing the values of goods and services
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| Store of Value | Something that keeps its value if it is stored stored rather than spent, like gold
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| Currency | coin and paper bulls used as money
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| Limited Supply | Federal Reserve controls the money supply to keep our currency valuable
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| Commodity money | Objects that have value in and of themselves that are also used as money, example coin from recycling
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| Representative money | Object that have value because the holder can exchange for something else
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| Fiat money | Objects that have value because a government has decreed that they are acceptable ways to pay debt
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| Specie | Coined money, usually gold or silver, used to back paper money
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| Bank | An institution for receiving, keeping and lending money
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| National Bank | A bank chartered by the federal government
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| Bank run | Widespread panic in which many people try to redeem their paper money at the same time
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| greenbacks | Paper currency issued during the Civil War
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