Part IV – Flashcards
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annual stockholders' report
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a report made available to stockholders and other interested parties that includes a variety of financial and descriptive information about a firm's operations in the recent past
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arbitration
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a procedure used to settle disputes between a brokerage firm and its clients; both side present their positions to a board of arbitration, which makes a final and usually binding decision on the matter
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ask price
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the price at which one can purchase a security
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asset allocation
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a plan for dividing a portfolio among different classes of securities in order to preserve capital by protecting the portfolio against negative market developments
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bear market
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a condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally rising securities prices
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bid price
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the price at which one can sell a security
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bull market
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a market condition normally associated with investor optimism, economic recovery, and expansion; characterized by generally rising securities prices
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discount broker
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a broker with low overhead who charges low commissions and offers little or no services to investors
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diversification
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the process of choosing securities with dissimilar risk-return characteristics in order to create a portfolio that provides an acceptable exposure to risk
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Dow Jones Industrial Average (DJIA)
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the most widely followed measure of stick market performance; consists of 30 blue-chip stocks listed mostly on the NYSE
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full-service broker
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a broker who, in addition to executing clients' transactions, offers a full array of brokerage services
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Dow Jones Wilshire 5000 index
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an index of the total market value of the approximately 6,000-7,000 or so most actively traded stocks in the United States
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investing
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the process of placing money in some medium such as socks or bonds in the expectation of receiving some future benefit
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investment plan
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a statement - preferably written - that specifies how investment capital will be invested to achieve a specified goal
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limit order
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an order to either buy a security at a specified or lower price or to sell a security at or above a specified price
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market order
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an order to buy or sell a security at the best price available at the time is is places
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National Association of Securities Dealers (NASD)
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an agency made up of brokers and dealers in over-the-counter securities that regulates OTC market operations
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NYSE index
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an index of the performance of all stocks listed on the New York Stock Exchange
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odd
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lot A quantity of fewer than 100 shares of a stock
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online broker
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typically a dissent broker through which investors can execute trades electronically/online through a commercial service or on the Internet; also called Internet broker or electronic broker
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portfolio
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a collection of securities assembled for the purpose of meeting common investment goals
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prospectus
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a document made available to prospective security buyers that describes the firm and a new security issue
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round lot
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a quantity of 100 shares of stock or multiples thereof
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Securities and Exchange Commission (SEC)
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an agency of the federal government that regulators the disclosure of information about securities and generally oversees the operation of the securities exchanges and markets
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Securities Investor Protection Corporation (SIPC)
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a nonprofit corporation, created by Congress and subject to SEC and congressional oversight, the insures customer accounts against the financial failure of a brokerage firm
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securities market
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the marketplace in which stocks, bonds, and other financial instruments are traded
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speculating
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a form of investing in which future value and expected returns are highly uncertain
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Standard & Poor's (S&P)
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indexes compiled by Standard & Poor's that are similar to the DJIA but employ different computational menthols and consist of far more stocks
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stockbroker (account executive, financial consultant)
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a person who buys and sells securities on behalf of clients and gives them investment advice and information
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stop-loss (stop order)
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an order to sell a stock when the market prices reaches or drops below a specified level
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accrued interest
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the amount of interest thats been earned since the last coupon payment date by the bond hinder/seller, but which will be received by the new owner/buyer of the bond at the next regularly schedules coupon payment date
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agency bond
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an obligation of a political subdivision of the U.S. government
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beta
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an index of the price volatility for a share of common stock; a reflection of how the stock price responds to market forces
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blue-chip stock
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a stock generally issued by companies expected to provide an uninterrupted stream of dividends and good long-term growth prospects
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book value
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the amount of stockholders' equity in a from; determined by subtracting the company's liabilities and preferred stock from its assets
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business risk
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the degree of uncertainty associated with a firm's cash flows and with its subsequent ability to meet its operating expenses
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call feature
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a bond feature that allows the issuer to retire the security prior to maturity
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clean price
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the quoted price of a bond plus accrued interest, the total of which is the relevant price to be paid by a bond buyer
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conversion premium
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the difference between a convertible security's market price and its conversion value
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conversion privilege
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the provision in a convertible issue that stipulates the conditions of the conversion feature, such as the conversion period and conversion ratio
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conversion ratio
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a ratio specifying the number of shares of common stock which a convertible bond can be converted
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conversion value
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a measure of what a convertible issue would trade for if it were priced to sell based on its stock value
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corporate bond
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a bond issued by a corporation
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coupon
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a bond feature that defined the annual interest income that the issuer will pay the bondholder
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current yield
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the amount of current income a bond provides relative to its market price
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cyclical stock
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a stock whose price movements tend to parallel the various stages of the business cycle
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debenture
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an unsecured bond issued on the general credit of the firm
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defensive stock
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a stocks whose price movements are usually contrary to movements in the business cycle
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desired rate of return
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the minimum rate of return an investor feels should be earned in compensation for the amount of risk assumed
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dirty (full) price
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the quoted price of a bond plus accrued interest, the total of which is the relevant price to be paid by a bond buyer
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discount bond
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a bond whose market value is lower than par
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dividend reinvestment plan (DRP)
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a program whereby stockholders can choose to take their cash dividends in the form of more shared of the company's stock
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dividend yield
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the percentage return provided by the dividends paid on common stock
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earnings per share (EPS)
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the return earned by each share of common stock; calculated by dividing all earnings remaining after paying preferred dividends by the number of common shares outstanding
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equipment trust certificate
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a bond secured by certain types of equipment, such as railroad cars and airplanes
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event risk
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the risk that some major, unexpected event will occur that leads to a sudden and substantial change in the value of an investment
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financial risk
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a type of risk associated with the mix of debt and equity financing used by the issuing firm and its ability to meet its financial obligations
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fixed-income securities
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securities such as bonds, notes and preferred stocks that offer purchasers fixed periodic income
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general obligation bond
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a municipal bond backed by the full faith and credit of the issuing municipality
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growth stock
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a stock whose earnings and market price have increased over time at a rate well above average
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income stock
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a stock whose appeal is the dividends it pays out; offers dividend payments that can be expected to increase over time
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interest rate risk
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a type of risk, resulting from changing market interest rates, that mainly affects fixed-income securities
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junk bond
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also known as high-yield bonds, these are highly speculative securities that have received low ratings from Moody's or Standard & Poor's
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large-cap stock
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a stock with a total market value of more than $10 billion
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liquidity (or marketability) risk
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a type of risk associated with the inability to liquidate an investment conveniently and at a reasonable price
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market risk
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a type of risk associated with the price volatility of security
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mid-cap stock
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a stock whose total market value falls somewhere between $2 billion and $10 billion
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mortgage bond
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a bond secured by a claim on real assets, such as a manufacturing plant
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mortgage-backed securities
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securities that are a claim on the cash flows generated by mortgage loans, bonds backed by mortgage loans; bonds backed by mortgages as collateral
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municipal bond
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a bond issued by state or local governments; interest income is usually exempt from federal taxes
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net profit margin
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a key measure of profitability that relates a firm's net profits to its sales; shows the rate of return the company is earning on its sales
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premium bond
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a bond whose market value is higher than par
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price/ earnings (P/E) ratio
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a measure of investors' confident in a given security; calculated by dividing marker price per share by earnings per share
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proxy
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a written statement used to assign a stockholder's voting rights to another person, typically one of the directors
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purchasing power risk
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a type of risk, resulting from possible changes in price levels, that can significantly affect investment returns
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residual owners
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shareholders of the company; they are entitled to dividend income and a share of the company's profits only after all the firm's other obligations have been met
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return on equity (ROE)
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a measure that captures the firm's overall profitability; it is important because of its impact on the firm's growth, profits, and dividends
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revenue bond
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a municipal bond serviced from the income generated by a specific project
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risk-free rate of return
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the rate of return on short-term government securities, such as Treasury bills, that is free from default risk
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serial obligation
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an issue that is broken down into a series of smaller bonds, each with its own maturity date and coupon rate
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sinking fund
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a bond provision specifying the annual repayment schedule to be used in paying off the issue
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small-cap stock
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a stock with a total market value of less than $2 million
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speculative stock
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stock that is purchased on little more than the hope that its price per share will increase
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stock dividends
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new shares of stock distributed to existing stockholders as a supplement to or substitute for cash dividends
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tech stock
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a stock that represents the technology sector of the market
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Treasury bond
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a bond issued by and backed by the full faith and credit of the U.S. government
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Treasury inflation-indexed bond (TIPS)
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a bond issued by the U.S government that has principal payments that are adjusted to provide protection against inflation, as measured by the Consumer Price Index (CPI)
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yield of maturity
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the fully compounded rate of return that a bond would yield if it were held to maturity
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12(b)-1 fee
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an annual fee that's supposed to be used to offset the promotion and selling expenses
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automatic investment plan
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an automatic savings program that enables an investor to channel a set amount of money systematically into a given mutual fund
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automatic reinvestment plan
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a plan that gives shareholders the option of electing to have dividends and capital gains distributions reinvested in additional fund shares
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back-end load fund
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a commission charged for redeeming fund shares
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closed-end investment company
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an investment company that issues a fixed number of shares, which are themselves listed and traded like any other share of stock
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conversion (exchange) privileges
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a feature that allows investors to switch from one mutual fund to another within a family of funds
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exchange traded fund (ETF)
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an investment company whose shares trade on stock, ETF shares can be bought or sold (or sold short) throughout the day
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general-purpose money fund
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a money fund that invests in virtually any type of short-term investment vehicle
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government securities money fund
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a money fund that limits its investments to short-term securities of the U.S. government and its agencies
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income (income-producing) property
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real estate purchased for leasing or renting to tenants in order to generate ongoing monthly/annual income in the form of rent receipts
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international fund
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a mutual fund that does all or most of its investing in foreign securities
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load fund
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a fund that charges a fee at time of purchase
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low-load fund
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a fund that has a low purchase fee
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management fee
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a fee paid to the professional money managers who administer a mutual fund's portfolio
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mutual fund
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a financial services organization that receives money from its shareholders and invest those funds on their behalf in a diversified portfolio of securities
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not asset value (NAV)
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the current market value of all the securities the fund owns, less any liabilities, on a per-share basis
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no-load fund
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a fund on which no transaction fees are charged
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open-end investment company
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a firm that can issue an unlimited number of shares that it buys and sells at a price based on the current market value of the securities it owns; also called a mutual fund
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pooled diversification
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a process whereby investors buy into a diversified portfolio of securities for the collective benefit of individual investors
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real estate investment trust (REIT)
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an investment company that accumulates money, by selling shares to investors, in order to invest it in various forms of real estate including mortgages; similar to a mutual fund, but REITs invest only in specific types of real estate or real estate-related products
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socially responsible fund (SRF)
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a fund that invests only in companies meeting certain moral, ethical, and/or environment criteria
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systematic withdrawal plan
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a plan offered by mutual funds that allows shareholders to be paid specified amounts of money each period
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tax-exempt money fund A money fund
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that limits its investments to short-term, tax-exempt municipal securities
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a bull market is characterized by
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investor optimism
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an individual investor is more likely to use the secondary markets than the primary market
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true
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the majority of U.S. securities are owned directly by individual investors
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false
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a retired couple can probably bear more risk in their portfolio than a younger investor with a secure job
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false
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a collection of investments is called
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a portfolio
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portfolio management involves making decisions in order to
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meet your investment needs and objectives
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your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions
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true
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you have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in
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mutual funds
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investing and speculation are two entirely different activities
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true
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the most important investment prerequisites are
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adequate insurance and liquidity
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which of the following is least likely to be an investment objective?
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pay monthly bills
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Discount brokers discount the price of securities to below the prevailing market price
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false
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instructing your broker to buy or sell a stock at a particular price
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limit order
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brokers charge a commission on security purchases as well as on security sales
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true
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a retail stockbroker buys and sells securities on behalf of clients
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true
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diversification increases risk
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false
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the total return of a portfolio is influenced far more by specific security selection than asset allocation
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false
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investing is considered a short-term activity that involves the buying and selling of securities
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false
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you have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in
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mutual funds
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there are a variety of investment vehicles including which of the following
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all of these
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mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own
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true
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during a bull market
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prices go up
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which of the following types of brokers is most likely to involve an investor trading electronically from hit or her personal computer?
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online broker
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total portfolio return id influenced more by asset allocation than by specific security selections
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true
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investment company earnings result solely from dividends
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false
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the current market value of all the securities a mutual fund owns is called the
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net asset value (NAV)
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Generally speaking, socially responsible funds abstain from investing in alcohol, gambling, or tobacco stocks
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true
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open ended mutual funds typically offer more diversification than an individual security
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true
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which of the following combines the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund?
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exchange traded fund (ETF)
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index funds are actively managed
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false
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all of the following are important advantages to buying shares in bond funds rather than investing directly in bonds EXCEPT
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all of these are advantages
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aggressive growth funds typically buy sticks with high PE ratios and stocks with volatile price fluctuations
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true
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the fund whose main objective is growth is known as a(n) _____ fund
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none of these
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a mutual fund allows investors to
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become owners of a widely diversified portfolio of securities
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a technology fund is an example of a sector fund
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true
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a(n) ____ fund invests primarily in a portfolio of common stocks for the income they provide
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equity-income
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ETTFs are set up to protect investors from capital gain taxes better than most mutual funds can
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true
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there are more closed end investment companies than there are open-end companies
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false
