Investing and Markets
80 flashcards by MentisLibrary
From stocks and bonds to index funds, valuation ratios, diversification, and risk. Learn the vocabulary and the concepts that let you read the market news without getting lost.
- What is a stock?
- A share of ownership in a company, entitling the holder to a claim on assets and earnings
- What is a bond?
- A loan to a government or company that pays periodic interest and returns the principal at maturity
- What are the major asset classes?
- Stocks, bonds, cash equivalents, real estate, and commodities
- What is a cash equivalent?
- A very safe, very liquid holding like a money market fund, Treasury bill, or short term CD
- What is a REIT?
- A real estate investment trust: a company owning income producing property, traded like a stock
- What is a dividend?
- A portion of company profits paid to shareholders, usually quarterly in the US
- What is dividend yield?
- Annual dividends per share divided by share price, expressed as a percentage
- What is market capitalization?
- A company's total value on the market: share price times shares outstanding
- What is the difference between common and preferred stock?
- Common stock has voting rights and variable dividends; preferred has priority fixed dividends but usually no vote
- What is a stock split?
- Dividing existing shares into more shares, lowering the price per share without changing total value
- What is a stock market index?
- A measured basket of securities used to track a market segment's performance
- What is the S&P 500?
- An index of about 500 of the largest US companies, weighted by market cap
- What is the Dow Jones Industrial Average?
- A 30 company US index weighted by share price rather than company size
- What is the Russell 2000?
- An index tracking about 2000 US small cap companies
- What is an index fund?
- A fund that passively holds an index's securities to match its return rather than beat it
- What is the difference between an ETF and a mutual fund?
- ETFs trade all day on exchanges like stocks; mutual funds trade once daily at the closing NAV
- What is an expense ratio?
- A fund's annual operating cost as a percentage of assets, deducted automatically from returns
- What is NAV?
- Net asset value: a fund's assets minus liabilities, divided by shares outstanding
- What is the difference between passive and active investing?
- Passive tracks an index at minimal cost; active tries to beat the market through selection and timing
- What is the P/E ratio?
- Price to earnings: share price divided by earnings per share, showing what investors pay per dollar of profit
- What is the difference between trailing and forward P/E?
- Trailing uses the past 12 months of actual earnings; forward uses analyst estimates of the next 12
- What is EPS?
- Earnings per share: net income divided by shares outstanding
- What is the price to book ratio?
- Share price divided by book value per share, comparing price to net accounting assets
- What is a dividend payout ratio?
- The share of earnings paid out as dividends
- What is a bond coupon?
- The fixed interest payment a bond makes, named for the paper coupons once clipped
- What is bond maturity?
- The date the issuer repays the bond's face value and the loan ends
- What is a bond's face value?
- The amount repaid at maturity, typically 1000 dollars, also called par value
- Why do bond prices fall when interest rates rise?
- New bonds pay the higher rate, so older lower coupon bonds must sell at a discount to compete
- What is bond yield to maturity?
- The total annualized return if a bond is held to maturity, counting coupons and price paid
- What are bond credit ratings?
- Agency grades of default risk: AAA highest, down through BBB- for investment grade, below that high yield