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Flashcards in Test 3 Deck (56):
0

Define IPO.

Initial public offering- first time the stock is available to the general public on a primary market.

1

In finance, what purpose are tombstones used?

To inform people that know a stock is available for sale.

2

Which exchange has the most stringent requirements and 90% of the annual dollar volume of stock shares traded?

NYSE

3

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.

4

Preferred stock

Hybrid of debt and equity, preferential treatment

5

Blue-chip stock

Pays good dividends, value appreciates over time.

6

Income stocks

Pays a lot in dividends, ex. Utilities

7

Growth stocks

No dividends, potential for large amounts of growth, risky

8

Speculative stocks

Huge potential for growth or loss, risky

9

Cyclical stocks

Move/change with the economy

10

Defensive stock

Very stable, tend to stay the same even when the economy is down.

11

Mid-cap stocks

Potential to become large-cap stocks, not much risk

12

Baby blue chip

Good companies with not much room to grow, ex. Tootsie Roll

13

Small-cap stock

Not many shares available or low stock price

14

ADRs

American depository receipt- bank takes care of details

15

Advantages of International mutual funds

More diversification, professionally handled, less risk

16

Direct investment

Risky and expensive

17

What are the top three global exchanges?

NYSE, FTS-100, Nikkei

18

The secondary market primarily provides?

Pricing and liquidity

19

Bear market

Down market

20

Bull market

Up market

21

Underwriting

The broker takes the risk

22

Best effort

Broker makes best effort for company, company assumes risk

23

What is the difference between the primary and secondary markets?

Primary = buying stock directly from the company. Secondary = buying through a broker

24

What role is played by an investment banker?

Trades stock

25

What is the difference between a specialist and a dealer?

Both are market makers. Specialist= NYSE, Dealer= NASDAQ

26

Rank bonds from least to greatest risk.

Treasury, mortgage, debenture, subordinate debenture, junk (high yield)

27

The following terms are related to? Maturity date, Coupon rate, Par value.

Bonds

28

The following terms are related to? Par value, Dividends.

Stocks

29

Mortgage bonds

Backed by collateral

30

Junk bonds

AKA high yield bonds: very risky, high coupon rate

31

Debentures

Backed by the individual or company's good reputation

32

Subordinate debentures

Get paid after debentures

33

Convertible bonds

Can be converted into stock

34

Income bonds

Company only has to pay interest if they have the money

35

Callable bonds

Company can call back the bond before it reaches maturity

36

Sinking funds

How company plans to pay for bonds once they mature

37

Indexed/purchasing power bonds

CPI + 1 = floating interest rate

38

Zero coupon bonds

Zero interest, have to hold to maturity

39

A company will call a bond when interest rates?

Go down

40

Zero coupon bonds pay what amount of interest?

Zero

41

Which bond has a choice of whether or not to make interest payments?

Income bond

42

The yield curve shows the relationship between which two variables?

Time and return

43

As a bond approaches maturity, it's value will move toward?

Par, 1000

44

If the coupon rate is 8%, and the market interest rate is 10%, the bond will sell at....

Discount

45

If the coupon rate is 8%, and the market interest rate is 6%, the bond will sell at a...

Premium

46

If the coupon rate is 10%, and the market interest rate is 10%, the bond will sell at...

Par

47

Explain the importance of the bond rating system to the coupon rate.

It determines the coupon rate.

48

The price of common stock is primarily a reflection of?

Future growth potential

49

The future cash flow from stock arises from...

Dividend and price appreciation

50

List the three dividend valuation methods used to value common stock.

Zero growth, constant growth, and super growth.

51

Which valuation method is most appropriate for preferred stock?

Zero

52

The P/E ratio provides what information?

Money investors are willing to spend for a dollar of actual earnings.

53

Which valuation method is best for a new, quick growing technologies company?

Super growth

54

Which valuation method may be used when no dividends are paid?

EPS x P/E

55

If you have determined the value of a stock to be $45.67 according to your dividend valuation model and you look the stock up in the paper and determine the selling price is $55.43, should you purchase the stock, according to your valuation?

No, because you won't make the required rate of return.