Exam 4 review

Question 1

A firm’s profit divided by the number of outstanding shares. Higher the better

Answer 1

EPS (what it means and whether higher or lower is better)

Question 2

The current market price of a stock divided by earnings per share (EPS) over the past four quarters; used as the primary means of valuing a stock. Lower the better

Answer 2

P/E Ratio (what it means and whether higher or lower is better)

Question 3

How much money you make back from stocks

Answer 3

Dividend yield

Question 4

An impartial outsider’s opinion of the quality—or creditworthiness—of the issuing organization.

Answer 4

Bond ratings

Question 5

is the inte rest rate printed on the certificate when the bond is issued. It reflects the total annual fixed rate of interest that will be paid.

Answer 5

Coupon rate on bonds

Question 6

Investment company that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income or growth, or both.

Answer 6

Mutual funds

Question 7

Process of reducing risk by spreading investment money among several different investment opportunities.

Answer 7

Diversification

Question 8

No-load Funds

Answer 8

allow investors to purchase shares directly at the net asset value (NAV) without the addition of sales charges.

Question 9

Front-end load mutual funds

Answer 9

sales charge paid when an individual buys an investment, reducing the amount available to purchase fund shares.

Question 10

Annual fees that some “no-load” fund companies deduct from a fund’s assets to compensate salespeople and pay other expenses.

Answer 10

12b-1 fees

Question 11

A special kind of closed-end investment company is a real estate investment trust

Answer 11

REIT

Question 12

Income stock:

Answer 12

Income stock:

Question 13

Some dividends, but you’re hoping the value will increase.

Answer 13

Growth stock

Question 14

Been around a long time, good reputation. Relatively safe.

Answer 14

Blue-chip stock

Question 15

Remains steady in an economic downturn (electric utilities, groceries, cigarettes, movies…)

Answer 15

Countercyclical stock

Question 16

Grows with the economy. Trading at a low price relative to its company fundamentals. Considered underpriced?

Answer 16

Value stock

Question 17

Company with potential for substantial earnings, but those earnings may never be realized. Genetic engineering? Oil exploration?

Answer 17

Speculative stock

Question 18

Earnings per share and how to calculate

Answer 18

EPS - Profit/ # of shares

Question 19

The current market price of a stock divided by earnings per share (EPS) over the past four quarters; used as the primary means of valuing a stock.

Answer 19

P/E ratio and how to calculate

Question 20

A company that holds a portfolio of investment assets vs. assets that make goods or services. It is diversified, and professionally managed.

Answer 20

Mutual funds – how they work and their advantages

Question 21

having multiple investments in different areas so that you are more secure if one were to fail

Answer 21

diversified portfolio

Question 22

Real estate investing: the advantages

Answer 22

passive income, cash flow, tax advantages, diversification, leverage

Question 23

Real estate investing: the disadvantages

Answer 23

long-term investment, market volatility, depreciation, requires large amounts of cash.

Question 24

Which things are tax deductible on real estate used for investing

Answer 24

depreciation (residential for 27.5 years and non-residential for 39 years), interest, exchange of property for higher value (1031 exchange), capital gains are taxed at low rates, vacation home rental income is taxed very low.

Question 25

income minus expenses/ property value (times 100) (The higher the better)

Answer 25

Rental yield and how to calculate:

Question 26

Home price/Annual rent

Answer 26

Price-to-rent ratio and how to calculate

Question 27

A measure of stock volatility; that is, how much the stock price varies relative to the rest of the market.

Answer 27

Beta

Question 28

move up and down with the economy

Answer 28

Cyclical

Question 29

Type of fixed-income ownership security in a corporation that pays fixed dividends.

Answer 29

Preferred cock

Question 30

companies that pays a cash dividend higher than that offered by most companies. Stocks issued by telephone, electric, and gas utility companies

Answer 30

Income cocks

Question 31

Growth stocks are corporations that are leaders in their fields, that dominate their markets, and that have several consecutive years of above-industry-average earnings; pays some dividends

Answer 31

Growth

Question 32

Risk associated with owning only one investment of a particular type (such as stock in one company) that, by chance, may do very poorly in the future due to uncontrollable or random factors that do not affect the rest of the market.

Answer 32

Unsystematic

Question 33

The possibility for an investor to experience losses due to unknown factors that affect the overall performance of the financial markets.

Answer 33

Systematic

Question 34

profits that a firm distributes to stockholders.

Answer 34

Dividends

Question 35

A debt instrument issued by an organization that promises repayment at a specific time and the right to receive regular interest payments during the life of the bond.

Answer 35

Bonds

Question 36

Collection of investments assembled to meet your investment goals.

Answer 36

Portfolios