FIN 2100 Chapter 14 – Flashcards
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Common stock
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The most basic form of ownership for a cooperation
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Equity financing
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Money received from the sale of shares of ownership in a business
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Dividend
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A distribution of money, stock, or other property that a corporation pays to stockholders
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Proxy
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A legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals
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Ex-dividend
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A situation when a stock trades "without dividend," and the seller- not the buyer- is entitled to a declared dividend payment
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Record date
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The date on which a stockholder must be registered on the corporations books in order to receive dividend payments
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stock split
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A procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares
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Preferred stock
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A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends
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Blue chip stock
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A safe investment that generally atracts conservative investors
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Cyclical stock
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A stock that follows the business cycle of advances and declines in the economy
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Defensive stock
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A stock that remains stable during declines in the economy
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Growth stock
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A stock issued by a corporation that has the potential of earning profits above the average profits of all firms in the economy
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Income stock
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An investment that pays higher-than-average dividends
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Large cap stock
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A stock issued by a corporation that has a large capitalization, in excess of $10 billion
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Midcap stock
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A stock issued by a corporation that has capitalization of between $2 and $10 billion
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Small cap stock
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A stock issued by a company that has a capitalization of between $300 million and $2 billion
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Micro cap stock
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A stock issued by a company that has a capitalization of $300 million or less
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Penny stock
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Often defined as a stock that sells for $1 or less per share (or in some cases, less than $5 per share)
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Earnings per share
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A corporation's after-tax income divided by the number of outstanding shares of a firm's common stock
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Price-earnings ratio
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The price of a share of stock divided by the corporation's earnings per share of stock. P/E
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Dividend payout
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The percentage of a firm's earnings paid to stockholders in cash
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Dividend yield
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The annual dividend amount generated by an investment divided by an investment's current price per share
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Total return
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A calculation that includes the annual dollar amount of dividends as well as any increase or decrease in the original purchase price of the investment
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Annualized holding period yield
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A yield calculation that takes into account the total return, the original investment, and the time the investment is held
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Beta
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A measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Stock Index
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Book value
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Determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock
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Market-to-book ratio
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The current market value of one share of stock divided by the book value for one share of stock
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Fundamental analysis
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An investment practice based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings
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Technical analysis
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An investment practice based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole
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Efficient market hypothesis
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An investment theory based on the assumption that stock price movements are purely random
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Primary market
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A market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities
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Investment bank
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A financial firm that assists corporations in raising funds, usually by helping to sell new security issues.
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Initial public offering (IPO)
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Occurs when a corporation sells stock to the general public for the first time
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Secondary market
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A market for existing financial securities that are currently traded among investors
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Securities exchange
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A marketplace where member brokers who represent investors meet to buy and sell securities
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Specialist
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Buys or sells a particular stock in an effort to maintain an orderly market
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Over-the-counter (OTC) market
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A network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
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Nasdaq
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An electronic marketplace for approximately 3,200 different stocks
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Account executive
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A licensed individual who buys or sells securities for clients; also called a stock broker
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Market order
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A request to buy or sell a stock at the current market value
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Limit order
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A request to buy or sell a stock at a specified price
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Stop order
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An order to sell a particular stock at the next available opportunity after its market price reaches a specified amount.
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Dollar cost averaging
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A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals
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Direct investment plan
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A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm
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Dividend reinvestment plan
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A plan that allows current stockholders the options to reinvest or use their cash dividends to purchase stock of the corporation
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Day trader
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An individual who buys and then later sells stocks and other securities in a very short period of time
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Margin
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A speculative technique whereby an investor borrows part of the money needed to buy a particular stock
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Selling short
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Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date
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Option
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The right to buy or sell a stock at a predetermined price during a specified period of time
