Flashcards in Test 3 Deck (56):
Initial public offering- first time the stock is available to the general public on a primary market.
In finance, what purpose are tombstones used?
To inform people that know a stock is available for sale.
Which exchange has the most stringent requirements and 90% of the annual dollar volume of stock shares traded?
From the company's perspective, what is the greatest disadvantage of offering common stock?
Selling a part of the company and giving up some control.
Hybrid of debt and equity, preferential treatment
Pays good dividends, value appreciates over time.
Pays a lot in dividends, ex. Utilities
No dividends, potential for large amounts of growth, risky
Huge potential for growth or loss, risky
Move/change with the economy
Very stable, tend to stay the same even when the economy is down.
Potential to become large-cap stocks, not much risk
Baby blue chip
Good companies with not much room to grow, ex. Tootsie Roll
Not many shares available or low stock price
American depository receipt- bank takes care of details
Advantages of International mutual funds
More diversification, professionally handled, less risk
Risky and expensive
What are the top three global exchanges?
NYSE, FTS-100, Nikkei
The secondary market primarily provides?
Pricing and liquidity
The broker takes the risk
Broker makes best effort for company, company assumes risk
What is the difference between the primary and secondary markets?
Primary = buying stock directly from the company. Secondary = buying through a broker
What role is played by an investment banker?
What is the difference between a specialist and a dealer?
Both are market makers. Specialist= NYSE, Dealer= NASDAQ
Rank bonds from least to greatest risk.
Treasury, mortgage, debenture, subordinate debenture, junk (high yield)
The following terms are related to? Maturity date, Coupon rate, Par value.
The following terms are related to? Par value, Dividends.
Backed by collateral
AKA high yield bonds: very risky, high coupon rate
Backed by the individual or company's good reputation
Get paid after debentures
Can be converted into stock
Company only has to pay interest if they have the money
Company can call back the bond before it reaches maturity
How company plans to pay for bonds once they mature
Indexed/purchasing power bonds
CPI + 1 = floating interest rate
Zero coupon bonds
Zero interest, have to hold to maturity
A company will call a bond when interest rates?
Zero coupon bonds pay what amount of interest?
Which bond has a choice of whether or not to make interest payments?
The yield curve shows the relationship between which two variables?
Time and return
As a bond approaches maturity, it's value will move toward?
If the coupon rate is 8%, and the market interest rate is 10%, the bond will sell at....
If the coupon rate is 8%, and the market interest rate is 6%, the bond will sell at a...
If the coupon rate is 10%, and the market interest rate is 10%, the bond will sell at...
Explain the importance of the bond rating system to the coupon rate.
It determines the coupon rate.
The price of common stock is primarily a reflection of?
Future growth potential
The future cash flow from stock arises from...
Dividend and price appreciation
List the three dividend valuation methods used to value common stock.
Zero growth, constant growth, and super growth.
Which valuation method is most appropriate for preferred stock?
The P/E ratio provides what information?
Money investors are willing to spend for a dollar of actual earnings.
Which valuation method is best for a new, quick growing technologies company?
Which valuation method may be used when no dividends are paid?
EPS x P/E