Chapter 1 Terms

Question 1

Book value

Answer 1

Usually used to mean shareholders’ equity, which is a company’s assets minus it’s liabilities, and is found on the company’s balance sheet. This type of book value is also called the stated book value. A more conservative variation is the tangible book value, which is total assets minus intangible assets minus liabilities.

Question 2

Breakaway gap or breakout gap

Answer 2

A price gap on a bar chart that begins a trend

Question 3

Earnings per share

Answer 3

A measure of a company’s profitability that expresses the amount of a company’s profit allocated to each outstanding share of its common stock. EPS is typically calculated by dividing net income by the average number of shares outstanding.

Question 4

Bullish trading channel

Answer 4

An upward trend in the price range between a stock’s support and resistance levels.

Question 5

Junk bonds

Answer 5

Bond with rating under bbb- or baa3

Question 6

Internal rate of return

Answer 6

The interest rate that sets the net present value of an investment’s cash flows to zero, used to evaluate investment choices.

Question 7

Bearish trading channel

Answer 7

A downward trend in the price range between a stock’s support and resistance levels.

Question 8

Gross profit formula

Answer 8

Net revenues - cogs

Question 9

Prime rate

Answer 9

A short-term interest rate that banks charge their highest-rated customers and commonly used as a benchmark to set other interest rates.

Question 10

Ebit

Answer 10

Operating income plus non-operating income.

Interest and taxes are not subtracted from this amount

Question 11

Form 8k

Answer 11

A form on which a publicly traded company must report certain important “current information.” Companies file an 8-K only when they have a material event to report to shareholders.

Question 12

Fully diluted earnings per share

Answer 12

Earnings per share divided into a bigger pie of shareholders. In this measure, all owners of in-the-money options from employee stock options plans and warrants are assumed to exercise their options, and all convertible security owners are assumed to convert their securities to common stock.

Question 13

Federal funds rate

Answer 13

The interest rate banks charge each other for overnight loans

Question 14

Profit margins

Answer 14

A measure of earnings as a percentage of sales. In other words, it is the percentage of sales that is profit.

Question 15

Debt to equity ratio

Answer 15

A measure that compares how much a company owes to how much equity there is (what is left for the owners if everything is sold and all debts paid).

Question 16

Paid in capital

Answer 16

The amount of money the company received from the sale of stock.

One of three categories of shareholders equity

Question 17

Schedule 13d

Answer 17

A report that must be filed by anyone who directly or indirectly acquires beneficial ownership of more than 5% of a voting class of the securities of a public company. It must be filed with the SEC no later than 10 days after the purchase.

Question 18

Current ratio

Answer 18

Current assets : current liabilities

number > 1 is desirable bc it means the comp can meet short term financial obligations

Question 19

Unearned income

Answer 19

Income derived from activities in which the individual does not directly participate, such as property rentals or income from a limited partnership.

Question 20

Subject quotation

Answer 20

nominal quote at a fixed price that is subject to the market maker’s reconfirmation.

Question 21

Unregistered stock

Answer 21

Stock acquired from an issuer in a private placement or other exempt offering. Also called restricted stock.

Question 22

Spot rate

Answer 22

The interest rate or exchange rate on a contract’s settlement date

Question 23

PE Ratio

Answer 23

A metric for valuing a company that measures the current share price of its securities in relation to its earnings per share (EPS). It is calculated by dividing market value per share by EPS.

Question 24

Automatic stabilizer

Answer 24

Government programs whose expenditures automatically fluctuate counter to the economic cycle.

Question 25

Short interest ratio

Answer 25

A ratio used by traders who employ technical analysis that is calculated by dividing number of open short positions for a stock by the stock’s average daily trading volume.

Question 26

Federal funds

Answer 26

Excess reserves (money) that commercial banks deposit at regional Federal Reserve Banks.

Question 27

M2

Answer 27

One of the three measures of the money supply in the U.S. It includes M1 and adds other monies that cannot be spent on demand, such as savings accounts, short-term money market accounts, and time deposits (CDs) of less than $100,000.

Question 28

Contraction

Answer 28

A phase of the business cycle in which the economy experiences a decline of economic activity, tightening credit, and rising unemployment.

Question 29

Earnings before taxes

Answer 29

What remains once operating expenses and interest expenses are subtracted from gross profit. Tax payments are not subtracted from this amount.

Question 30

Inverted yield curve

Answer 30

A yield curve indicating that short-term bonds are paying a higher yield than medium- or long-term bonds.

Question 31

M3

Answer 31

One of the three measures of the money supply in the U.S. It includes M2 and adds longer term time deposits and institutional money market accounts.

Question 32

M1

Answer 32

One of the three measures of the money supply in the U.S. M1 is physical money, which includes notes and coins in circulation, as well as funds that can be spent immediately, such as checking and other accounts against which checks can be written. It also includes traveler's checks. It is the narrowest measure of the money supply that is tracked by economists.

Question 33

Head and shoulders patterns

Answer 33

A pattern on a line chart having three identifiable peaks, the middle peak being the highest, indicating the breaking of the previous trend.

Question 34

Interest rate risk

Answer 34

The risk that the value of an investment will fall due to changing interest rates.

Question 35

Price to book ratio

Answer 35

A metric used to determine whether a stock is appropriately priced relative to the value of its assets. It is calculated by dividing market value per share by book value per share.

Question 36

Foreign trade deficits

Answer 36

A current account balance for international trade that represents the dollar value of U.S. exports minus imports. An increase in value means imports are growing faster than exports; a decrease in value means exports are growing faster than imports, which indicates an expansion phase.

Question 37

Serial payments

Answer 37

A stream of pmts received over a given period of time from FI securities like bonds

Question 38

Floating currencies

Answer 38

Currencies whose values are determined by supply and demand in the foreign exchange market.

Question 39

Net income

Answer 39

What remains when operating expenses, interest expenses, and taxes have been subtracted from gross profit. Also known as net profit or net earnings.

Question 40

Expansion

Answer 40

A phase of the business cycle in which the economy experiences an increase in economic activity, loosening credit and falling unemployment.

Question 41

Broker call rate

Answer 41

The interest rate that banks charge broker-dealers to meet their customers’ margin requirements.

Question 42

Stated book value

Answer 42

The theoretical amount of money left over for common stockholders if a company is forced to liquidate