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Ch 12 - Investing in Stocks
vocab
17
Finance
Undergraduate 1
11/13/2011

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Term
earnings
Definition
is a word hat can have several meanings when used to describe accounting activity, but it generally means profits when used without a modifying term to describe some other function
Term
Securities and Exchange Commission
Definition
is the main regulatory agency responsible for monitoring the stock markets ad securities industry. it must approve all IPOs and requires frequent and regular filings from publicly-traded companies. it is a watchdog for investors to protect them against unethical investing practices
Term
investment-banking firms
Definition
are large financial institutions that handle the initial distribution of shares during an IPO. they sell shares to national and regional brokerage firms who in turn sell them to their best client
Term
specialist
Definition
is an employee of a member of the firm of the NYSE. this investment professional is responsible for maintaining a market in a particular stock. the ___ matches buy and sell orders but, if the market gets out of balance, may step in an buy or sell out of the company's account to regain balance
Term
market makers
Definition
on the Nasdaq make a market for a stock they cover by providing a quote at which they would buy or sell the stock. they enter customer's orders and the computer system places the best buy order and the best sell order at the top of their respective quote lists
Term
exchange traded funds (ETFs)
Definition
are similar to mutual funds in that they are baskets of stocks or bonds, but they are traded on an open market like stocks.
Term
dividends
Definition
are cash payments (usually, but not always) to shareholders by companies. they are a distribution of profits to the owners. companies that pay regular ___ are valued for that extra return they provide shareholders.
Term
preferred stocks
Definition
are a special type of stock that companies issue. they have limited rights when it comes to voting on company business but they do pay a steady dividend and that's what attracts investors. the stock's price may not rise (or fall) nearly as fast or as far as the common stock. income investors like ____ from solid companies for its dependability.
Term
deflation
Definition
is a marked decline in the prices of goods and services, usually accompanied by high unemployment and a drop in the output of a nation's economy
Term
earnings per share (EPS)
Definition
is a way of reporting earnings or profits on a per share of stock. the number is found by dividing the annual earnings by the number of shares.
Term
real estate investment trusts
Definition
are closed-end funds that invest in real estate and mortgages. they must pass 90% of all profits on to the shareholders, which makes them well-suited for people looking for current income
Term
asset classes
Definition
are tangible assets such as stocks, bonds, cash, real estate, and other types of assets. these different classes form the basis of active diversification.
Term
stop-loss orders
Definition
tell your stockbroker to execute a sell order when the price of a stock drops to a specific level. when the price falls to this level, the broker sells the stock at the current market price. this strategy prevents you from losing more than a specific amount
Term
trailing stops
Definition
are similar to a stop loss order, but they are used by investors to protect a profit. investors place a ____ behind a profitable stock so that if the price begins to fall, the broker will sell while the price will still produce a profit. if the stock continues to rise, the ___ rises with the stock's price, usually following a percentage
Term
stock options
Definition
give the owner the right but not the obligation to buy a certain number of stock shares at a fixed price on or before a certain date regardless of the current market price. employers often use ___ a incentives for employees
Term
strike price
Definition
is the price specified in the option that the owner can pay for shares of stock. if the market price is higher than the ___, the options are valuable; however, if the market price is lower than the ___, the options are worthless
Term
vesting schedule
Definition
is a period set by management for the options to become valid. for example. 20% of the options might become valid after one year; 40% after two years; and so on. this is known as a stepped or phased ___. another type of ___ is cliff ___, which declares 100% of the options are valid after three years, for example.
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