FIN Exam 1 vocab

Question 1

economic indicator

Answer 1

a statistic used to gauge future trends in a nation’s economy

Question 2

Alan Greenspan

Answer 2

former chairman of Federal Reserve

Question 3

Triple Taxation

Answer 3

The first tax would be levied when orig corp is taxed for earnings. The second tax occurs when corp that owns stock in the first corp pays dividends for shares of stock that represent ownership. The third taxation occurs when dividends are paid to stockholders and is taxed as personal income.

Question 4

IPO

Answer 4

initial public offering, first time trade shares available to public

Question 5

leverage

Answer 5

amount of debt

Question 6

releverage/deleverage

Answer 6

to repay a company’s debts in order to make it more attractive to investors

Question 7

mortgage

Answer 7

loan made where real estate is the collateral for the loan

Question 8

sub-prime

Answer 8

borrowers w/ lower credit ratings that don’t qualify for conventional; lender views borrower as having a larger-than-avg risk of defaulting on loan

Question 9

Ben Bernanke

Answer 9

current chairman of Federal Reserve

Question 10

Follow-on offering (Linked-in)

Answer 10

company offering additional stock after initial offering

Question 11

negative equity (related to mortgages & home ownership)

Answer 11

a situation in which one owes more on a loan used to pay for an asset than that asset’s current market value

Question 12

Ostrich effect

Answer 12

investors stick their heads in sand during lousy markets

Question 13

Signaling effect

Answer 13

company announces incr in dividend payouts or acquisition, indicator of firm possessing strong future prospects or stock price incr

Question 14

secondary equity offerings

Answer 14

issuance of stock subsequent to the company’s IPO

Question 15

quantitative easing

Answer 15

Fed’s purchase of treasury & mortgage bonds (bond buying program to stimulate economy)

Question 16

tapering

Answer 16

anticipated reduction of Fed Reserve’s quantitative easing, cutting back on purchases

Question 17

shorting stock

Answer 17

1. borrow stock
2. sell stock
3. buy stock
4. return stock to owner

Question 18

moving average

Answer 18

measure momentum, define areas of support & resistance

Question 19

debt ceiling

Answer 19

deadline is mid-October, costs could be huge, non-negotiable

Question 20

federal budget

Answer 20

deadline is Sept 30, partial gov shutdown if no resolution, negotiable

Question 21

due diligence

Answer 21

reasonable steps taken by a person in order to satisfy a legal requirement (before transaction is satisfied)

Question 22

write-off

Answer 22

write value of asset down to zero, affects IS (debit)

Question 23

pricing of secondary offerings

Answer 23

incr outstanding stock, founders decr positions & don’t want stock price to plummet

Question 24

signaling effect of secondary offerings

Answer 24

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