Personal Finance Chapter 14 (Stocks)

Corporation A legal entity separate from it’s shareholders.
Going Public When a company first issues stock.
IPO Initial Public Offering
Share of Stock A unit of ownership in a corporation.
Round Lot 100 shares or multiples of 100 shares.
Odd Lot Fewer than 100 shares of a particular stock.
Comission What shareholders pay when they buy or sell stock.
Board of Directors A group of people elected by the shareholders to manage a corporation.
Annual Report A description of a company’s business and financial well being.
Stock Split Occurs when a company increases shares outstanding but lowers the selling prices in direct proportion. (Makes stock prices look lower and more appealing to shareholders.)
Dividend Income One way to make money through owning stock. Profits of the business distributed among shareholders.
Capital Gain One way to make money through owning stock. When an investor sells their stock for more than they originally paid.
Common Stock The owner shares directly in the success or failure of a business.
Preferred Stock Dividends are fixed regardless of how company is doing, usually the par value.
Cumulative Preferred Stock Company can hold off paying dividend but pay it and the new dividend amount next period all together.
Convertible Preferred Stock Can be exchanged at the stockholder’s option for a specific number of shares of common stock.
Income Stock Have a consistent history of paying high dividends.
Growth Stock Stocks in companies that use their profit to reinvest in the company. No dividends usually but good for capital gain.
Blue Chip Stock Companies are large, well established, and financially solid,. Maintain fairly stable price during ups and downs of the market. Pay small but regular dividends.
Penny Stock Stocks that have a traded value of under $5 per share.
Defensive Stock Shares that remain stable and pay dividends during economic decline.
Cyclical Stock Shares do well when economy is stable and poorly during recessions.
Market Capitalization Total dollar market value of all a company’s oustanding shares.
Earnings Per Share The corporation’s after-tax earnings divided by the number of shares outstanding. A measure of the company’s profitability.
Price Earnings Ratio Ratio of a company’s current share price compared to it’s per-share earnings. Shows how much investors are willing to pay per dollar of earnings. (Lower number = more UNDERvalued.)
PEG Ratio Ratio that shows the relationship between the price earnings ratio and earnings growth. tells a much more complete story that P/E on its own. (Lower number = more UNDERvalued.)
Rate of Return Tells the investor the percentage gain or loss based on an asset based upon his purchase price.
New York Stock Exchange (NYSE) Established May 17, 1792. Largest stock exchange in US. 2007 became publicly traded company. “Big Board”
American Stock Exchange (AMEX) Curb exchange before 1921.
Philadelphia Stock Exchange (PHLX) First stock exchange in north america.
Chicago Board of Options (CBOE) Standardized listing options in 1973 revolutionized options trading.
National Association of Securities Dealers Automated Quotation (NASDAQ) owned and operated by NASD. Worlds first electronic stock market.
Ticker Tape Constantly keeps up to date prices of SECURITIES. (Stock) Invented in 1867. Used to be on paper.
Market Order A request to buy or sell stock at the current market value.
Limit Order A request to buy or sell stock at a specified price or better.
Stop Order (Stop-Loss Order) An order to buy or sell a particular stock at the next available opportunity after its market price reaches a certain specific amount.
Index Average of stocks to see how stocks are performing overall and help investors gauge the market.
Securities and Exchange Commission (SEC) Government agency established in 1934 to monitor stock exchanges.
Dr. Ben Bernanke Chairman of the Federal Reserve Bank
Gross National Product (GNP) Total value of the goods/services produced by a nation during a specific period of time– usually a year.
Recession Happens when there is a decline in spending. (Total downturn in economic activity.) FR lowers prime rate to increase spending and decrease savings.
Inflation Happens when there is a rise in spending. FR increases prim rate to decrease spending and increasing savings.
Playing the Market (Speculator) Buying and selling stocks for quick profits.
Buying on Margin Borrowing money from your broker to buy stock if you open a margin account and sign a contract called a margin agreement.
Selling Short Selling borrowed stock from a broker that must be replaced at a later time. Then wait till stock drops, buy the borrowed shares and give back to broker.
Trading In Options An option that gives you the right to buy or sell stock at a predetermined price during a specific period of time.
Buy and Hold When an investor buys a stock and holds on to it for a long period of time.
Dollar-cost averaging Involves the systematic purchase of an equal dollar amount of the same stock at regular intervals.
Direct Investment Investors buy stock directly from the company
Dividend Reinvestment Program (DRIP) When dividends are automatically used to buy new shares of stock including fractional shares, a method that avoids a broker fee.

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