Business 1500 Chapter 19

Stock

Ownership in a corporation

Securities

All of the investments, including stocks, bonds, mutual funds, options, and commodities, that are traded.

Common Stock

the most basic form of ownership, including voting rights on major issues, in a company

Preferred Stock

A special hybrid type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

Book value

Difference between assets and liabilities divided by the number of circulating shares

Market value

The price at which a stock is selling on the stock market

Intrinsic value

Perceived value of the stock with qualitative/quantitative worth implemented

Price/Earnings (P/E) Ratio

The ratio of the price per share to earnings per share; shows the dollar amount investors will pay for $1 of current earnings.

Stock Split

Splitting stock into multiple shares

Bonds

Certificates of debt that carry a promise to buy back the bonds at a higher price

Face value (par value)

The amount of money the bond buyer is lending to the bond issuer

Maturity date

The date on which an investment becomes due for payment.

Bond yield

The return an investor would receive on a bond if it were purchased and held to maturity

Treasury bills

Short-term U.S. government bonds that are repaid in less than one year.

Treasury notes

Intermediate-term U.S. government bonds with maturities of 1 to 10 years

Treasury bonds

Long-term debt securities issued by the U.S. Treasury

Portfolio Diversification

Reduces risk by spreading money among a wide array of investments

Mutual Funds

A pool of money used by a company to purchase a variety of stocks, bonds or money market instruments. Provides diversification and professional management for investors.

Expense Ratio

The annual cost of owning a mutual fund, expressed as a percentage

Load

Commission a mutual fund charges

No-load funds

Mutual funds that do not charge loads

Index fund

Mutual funds that mirror the composition of a particular index

Exchange-traded funds

Offshoots of mutual funds that allow investors to trade index portfolios

Derivatives

Any financial asset whose value is derived from the value of some other "underlying" asset

Option

The purchased right�but not the obligation�to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period.

Call option

the option to buy shares of stock at a specified time in the future

Put option

the option to sell shares of stock at a specified time in the future

Financial Futures

Legally binding contracts to buy or sell a financial instrument

Commodities Futures

Contracts to buy or sell specific amounts of commodities for a set price at a future date

Currency Futures

Contracts to buy or sell amounts of specified currency at some future date

Credit Derivatives

Used to reduce a lender's exposure to credit risk

Stock exchange

A market for buying and selling stock

The Bond Market

The collective buying and selling of bonds; most bond trading is done over the counter, rather than in organized exchanges

The Money Market

Over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

The Derivatives Market

Futures and some options are traded on organized exchanges with time-tested financial controls and government regulation

Investment Portfolio

assortment of individual investment instruments

Asset allocation

Managing a portfolio to balance potential returns with an acceptable level of risk

Broker

An expert who has passed a series of formal examinations and is legally registered to buy and sell securities on behalf of individual and institutional investors

Market Order

A request to buy or sell a stock at the current market value

Limit Order

Highest price you are willing to pay and the lowest price you are willing to sell

Stop Order

Broker should sell if price drops to certain level

Short Selling

Selling stock borrowed from a broker that must be replaced at a later time

bear market

a market situation in which most stocks are decreasing in value

bull market

a market situation in which most stocks are increasing in value

capital gains

increases in the value of a stock or other asset

index

a statistical indicator of the rise and fall of a representative group of securities

margin trading

borrowing money from brokers to buy stock, paying interest on the borrowed money, and leaving the stock with the broker as collateral

municipal bonds

bonds issued by states, cities, and various government agencies to fund public projects

Net Asset Value (NAV)

a mutual fund's assets minus its liabilities; usually expressed as NAV per share

rate of return

the gain(or loss) of an investment over time, expressed as a percentage

Treasury Inflation-Protected Securities (TIPS)

Treasury issues in which the principal amount is tied to the Consumer Price Index to protect the buyer against the effects of inflation