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BSAD Final

Terms in this set (76)

Monthly Consumer Credit payments should be limited o what percentage of after tax (take home) income
20%
How large should your emergency fund be
3 months living expenses
What is the time value of money
x amount of money is worth more than the same amount in the future because of its capacity to earn interest
four risk factors
-inflation risk
-interest rate risk
-business failure risk
-market risk
inflation risk
the risk that the financial return on an asset will not keep pace with inflation
interest rate risk
the interest rate of government and corporate bonds are based on the interest rate set by the fed. When the fed changes the overlying interest rate of the economy, the return on government and corporate bonds change
-higher interest rate, lower value
-lower interest rate, higher value
Business Failure Risk
if a business you have an asset in fails or goes bankrupt, your asset's value is 0
Market Risk
-the risk of the business cycle
-the risk of politics or social changes effecting investments
asset allocation
the process of spreading your assets among several different types of investments to decrease risk
Suze Orzman's rule of 110
subtract age from 110
-that # is the percentage of investments which should be in riskier growth oriented investments
-that number subtracted from 100 is the number of investments you should have in conservative investments
Three main issuers of bonds
-Government
-State and Local Municipalities
-Corporations
Government Bonds
the written pledge of government or a municipality to repay a specified sum of money along with interest
Municipal Bond
a debt security issued by a state or local gov.
-interest earned is exempt from federal taxes
-capital gain as a result of buying low and selling high is taxable
Taxable equivalent yield
= tax-exempt yield/(1.0-your tax rate)
T-Bill
-short term bond
-gov pays face value back
Treasury Note
-2-10 years
-interest paid every six months until maturity
-interest higher than t-bills
Treasury Bonds
-30 year bond
-interest paid every six months until maturity
-interest rate higher than treasury note
Treasury Inflation-Protected Securities
-5,10,30 years
-at maturity you are paid the principle, the adjusted principle or the the origional principle, whichever is higher
-interest paid every six months at fixed rate
-increase with inflation
General Obligation Bond
a bond backed by the full, faith, credit and unlimited taxing power of the united states
Revenue Bond
a bond that is re-paid from the income generated by the project the bond was issued to finance
Corporate Bond
a corporations written pledge to repay a specified amount of money with interest
face value
the dollar amount the bondholder will receive at the bonds maturity
Maturity Date
for a corporate bond, the date on which the corporation is to repay the borrowed money
Bond indenture
legal document that outlines all of the conditions relating to a bond
Why do investors purchase bonds
for a conservative investment with low risk
How do you determine the current yield on a bond
=annual interest amount/current price
What are bond ratings
outlines quality and risk associated with a bond
who are the 2 leading providers of bond ratings
-Standard and Poor
-Moody's
Mortgage Bond
a corporate bond secured by various assets of the issuing firm
Convertible Bond
a bond that can be exchanged at the owners option for a specified number of shares in the corporations common stock
Interest Calculation
amount of annual interest= Face Value x Interest Rate
Calculating Approximate Market Value
dollar amount of annual interest /comparable interest rate
Why do companies issue stocks
to finance their business start up costs and help pay for expansion and their ongoing business activities
Common Stock
basic form of corporate ownership
What are three ways to make money buying common stock
-income from dividend
-Dollar Appreciation of Stock Value
-Possibility of increased value from stock splits
Stock Split
a procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares
dividend
a distribution of money, stock or other property that a corporation pays to stockholders
Record Date
the date on which a stockholder must be registered on the corporation's books n order to receive a dividend payment
Preferred Stock
a type of stock that gives the owner the advantage of receiving cash dividends before common stockholders
Defensive
A stock which holds a steady price during declines in the economy
Blue Chip
A stock issued by large stable corporations with a history of paying dividends, that generally attracts conservative investors
Cyclical Stock
a stock whos price fluctuates with the growth and recessions in the economy
Growth Stock
a stock issued by a corporation that has the potential of earning profits above the average profits of all firms in the economy
How do you compute earnings per share
=earnings/number of shares outstanding
how do you compute the price to earnings ratio
=price per share/earnings per share
how do you compute the dividend yield of a stock
=annual dividend amount/current price per share
Total Return
=dividends + Capital Gain
Investment bank
a financial firm that assists corporations in raising funds
Initial public offering (IPO)
Occurs when a corporation sells stock to the general public for the first time
Primary Market
a market in which an investor purchases financial securities, via an investment bank or other representative from the issuer of those securities
secondary market
a market for existing financial securities that are currently traded among investors
Whats the difference between the NYC Stock Exchange and NASDAQ
over the counter markets are a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
account executive
a licensed individual who works for a brokerage firm and buys or sells securities for clients
When you place a stock market order, how many days do you have to pay for it
...
What are the range of commission costs when buying a stock, between discount brokers and broker assisted firms
5-25
What is buying on the margin
when an investor borrows part of the money needed to buy a particular stock
selling short
selling stock that has been borrowed from a brokerage firm ans must be replaced at a late date
1.borrow a stock
2.sell the borrowed stock assuming it will drop in value
3. buy the stock back when its price is decreased
4.replace the stock borrowed with the stock bought at a lower price
Mutual Fund
pools the money of many investors- its shareholders-to invest in a variety of securities
two major reasons investors buy mutual funds
-professional management
-diversification
Exchange Traded Fund
a fund that invests in the stocks or other securities contained in a specific stock or securities index and whose shares are traded on a securities exchange or over the counter
Open Ended Mutual Fund
a mutual fund whose shares are issued and redeemed by the investment company at the request of investors
Closed end fund
a mutual fund whose shares are issued by an investment company only when the fund is organized
-finite number of shares
load fund
a mutual fund in which investors pay a commission (as high as 8.5 percent) every time they purchase shares
no-load fund
a mutual fund in which the individual investor pays no sales charge
Sales Charge Calculation
=dollar amount of investment x load stated as a percentage
Amount available for investment
=investment amount - load charge
range of annual fees for managers of mutual funds
.025-1.5% of net asset value
expense ratio
the amount that investors pay for all of a mutual funds management fees and operating costs
Index fund
invest in the same companies included in an index
-lower management fees
aggressive growth fund
seek rapid growth by purchasing stocks whose prices are expected to increase dramatically in a short period of time
-high turnover
balanced fund
invest in both stocks and bonds with the objectives of conserving principal, providing income, and providing long term growth
socially responsible fund
avoid investing in companies that may cause harm to people, animals and the environment
high yield (junk bond) fund
invest in high yield, high risk corporate bonds
life cycle or target date fund
popular with investors planning for retirement on a specific date, become increasingly conservative as the specified date approaches and as investors approach retirement
the S&P Index fund has traditionally outperformed what percentage of all managed mutual funds
50-80% of all mutual funds
mutual fund reinvestment plan
a service provided by n investment company in which shareholder income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund
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