Chapter 1 - Securitie Flashcards
(50 cards)
What are securities?
Financial instruments representing ownership (equities) or creditor relationships (bonds).
What are the two main types of securities?
Equities (stocks) and debt instruments (bonds).
How do companies raise capital through securities?
By issuing shares (equity financing) or bonds (debt financing).
What is the main difference between equity and debt financing?
Equity financing: No repayment, but shareholders get ownership.
Debt financing: Must be repaid with interest but no ownership is given.
What is an investment return?
The profit made from an investment, either through capital gains or income (dividends/interest).
What are ordinary shares (common stock)?
Shares representing ownership in a company with voting rights and dividends.
What are preference shares?
Shares that pay fixed dividends and take priority over ordinary shares in liquidation.
What is a dividend?
A portion of a company’s profits distributed to shareholders.
What is a stock split?
A corporate action that increases the number of shares while reducing their price.
What is a rights issue?
An offer for existing shareholders to buy new shares at a discount before public issuance.
What is the purpose of a bonus issue?
To reward shareholders by issuing free shares instead of cash dividends.
What does ‘limited liability’ mean for shareholders?
Shareholders only lose the money invested; they are not responsible for company debts.
What are deferred shares?
Shares that receive dividends after all other shares have been paid.
What are non-voting shares?
Shares that do not grant voting rights in company decisions.
What is an Initial Public Offering (IPO)?
The first time a company issues shares to the public.
What is a bond?
A loan made by investors to a company or government, paying fixed interest.
What is a coupon?
The interest paid on a bond, typically annually or semi-annually.
What is the face value (par value) of a bond?
The amount repaid at bond maturity.
What is a convertible bond?
A bond that can be converted into shares in the issuing company.
What is a government bond?
A bond issued by a national government (e.g., UK Gilts, US Treasuries).
What is a corporate bond?
A bond issued by a company to raise funds.
What is a zero-coupon bond?
A bond that pays no interest but is sold at a discount and repaid at full face value.
What is an index-linked bond?
A bond where interest payments are adjusted for inflation.
What is credit risk in bonds?
The risk that the issuer fails to repay the bond.
