money that is received in exchange for ownership in business
unit of ownership in a company that is sold with the intention of raising capital to finance ongoing or future projects and expansions
represents stock ownership and includes the details of the stock issue, such as the company name, the number of shares the certificate represents, and the type of stock being issues
payments made from a portion of a company's profits- to shareholders
Securities and Exchange Commission (SEC)
the federal agency that regulates and governs the securities industry
an area where companies and governments raise long term funds by selling stocks and bonds and other securities
part of the capital market that deals specifically with new bond and stock issues
a formal legal document that provides details about an investment. Helps investors make informed decisions about a new investment.
market in which investors purchase securities from other investors rather than directly from an issuing company
-most investors buy and sell stocks this way
Initial Public Offering (IPO)
the first sale of a stock to the public by a company
risk return relationship
direct relationship between the risk and return for all securities, with the least risky investments offering the lowest amount of return and vice- versa
having a variety of investments in your portfolio, such as different types of companies in different industries. If you invest in several companies that are in different industries, you can insulate yourself from any negative influences that affect one company or one industry.
suggests you structure your portfolio with different types of assets (stocks, bonds, real estate, mutual funds, etc.)
a class of ownership in which the preferred stockholders have a claim to assets before common stockholders if a firm goes out of business
issued by companies that pay large dividends, such as utility companies
-invest if you are looking for reliable income from investment and not appreciation of share value
blue chip stocks
issued by companies that have a long history of consistent growth and stability. They pay regular dividends and maintain a reasonably steady shared price. (ex. GMB, Sears, IMB)
issued by young, entrepreneurial companies that are experiencing rapid growth and expansion. They pay little to no dividends, investment potential is through appreciation in stock value.
-tend to be riskier than other stocks because companies do not have a proven track record
issued by companies that produce goods and services that are affected by economic trends. The prices of these stocks tend to go down when the economy is failing and go up when the economy is healthy (ex. automobiles, home building, and travel)
opposite of cyclical stocks. Issued by companies producing staples such as food, drugs, and insurance and usually maintain their value regardless of the state of the economy
professional who buys and sells securities on behalf of the investors. They also provide advice as to which securities to buy and sell and receive a fee for their services
organization that facilitates the exchange of stocks and other securities between brokers and traders
The New York Stock Exchange
stocks are bought and sold on a trading floor or via electronic market
stocks are only traded via an electronic market
indicates increasing investor confidence as the market continues to increase in value
indicates decreasing investor confidence as the market continues to decline in value
Dow Jones Average
30 companies evaluated for average
100 companies evaluated for average
sells stock at a higher price than bough
sells stock at lower price than bought
bond backed by collateral
unsecured bonds, backed by only by a corporation's promise to pay
are issued by national governments and are the safest investment
bonds issued by state or local governments or governmental agencies
simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective.
bond mutual funds
consist solely of bonds.
Money market funds
invest in short-term debt obligations. The interest rate for these funds is often nearly double that of "regular" interest-bearing checking or savings accounts. In addition, money market accounts provide check-writing privileges so you have quick access to the money.
are categorized by investment strategy such as growth funds, value funds, and blend (or balanced) funds. These funds are also categorized by size of the companies in which they invest such as large-capitalized (large-cap) funds, medium-cap funds, and small-cap funds.
benefits of mutual funds
diversification, professional management, liquidity, cost