Legal document that provides the specific terms of the loan agreement, including a description of the bond, the rights of the bondholders, the rights of the issuing firm, and the responsibilities of the bond trustees.
entitles the bond issuer to repurchase, or "call", the bonds from their holders at stated prices over specified periods.
to set aside money on a regular basis to pay off the bonds at maturity.
backed by collateral (a real asset that can be seized and sold if a debtor doesn't pay off the debt)
secured by a lien on real property
any unsecured long-term bond
federal government debt
bonds issued by government agencies other than the Treasury
GNMA: Government National Mortgage Association, a pass-through certificate which represents an interest in a pool of federally insured mortgages
Treasury Inflation Protected Securities: the par value changes with the consumer price index to guarantee the investor a real return
Munis or Municipal Bonds
Bonds issued by states, counties and cities, as well as other public agencies, such as school districts and highway authorities, to fund public projects
Zero Coupon Bonds
Bonds that don't pay interest and are sold at a deep discount from their par value; the interest is put in the principle over time until maturity
High Yield or Junk Bonds
Very risky, low-rated bonds, also called high-yield bonds. Rated BB or below.
a measure of Riskiness: AAA to BBB
ration of the annual interest payment to the bond's market price: (annual interest payments)/(market price of bond)
Yield to Maturity
The True Yield of return that the bond holder receives if a bond is held to maturity. It's the measure of expected return for a bond.
Interest Rates and Bond Values have...
an Inverse Relationship
Longer Maturities change in value more than...
shorter term bonds due to changes in Interest rates.
Invoice Price =
Bond selling price + accrued interest owed
non-voting; pays dividend as high as bond interest
Convertible preferred stock
its holder can, at anytime, exchange it for a predetermined number of shares of common stock.
Real Estate Investment Trust
Why buy/own stocks?
To generate income
How do you make money on Stocks?
capital gains and dividends
How often are stock dividends paid?
every 3 months
How fast do you have to pay; 3 days from the trade date
In bankruptcy, who stands ahead of common stock holders in claims on company assets?
Creditors, bond holders, preferred stock
increasing the number of stock shares outstanding by replacing the existing shares of stock with a given number of shares
When is a company’s stock considered a “value” investment?
How do you calculate dividend yield?
made / paid
How do you calculate investor return?
dividends + what you made or lost
How many companies stock prices are averaged in calculating the Dow Jones Industrial Average?
Blue Chip Stocks
Market Cap, maturity
Equity Income Stocks
Companies that pay you above average dividends
less than a proven model, predicting based on supply and demand
Cyclical vs. Defensive Stocks
Cyclical is based on economic changes and Defensive is tied to the economy (consumer staples)
something you don't have to buy
Company size breaks; Large, Medium, and Small Cap or capitalization.
Mid: 2 bil to 10 bil
Large: 10 bil to infinity
small: less than 2 bil
Technical Analysis for analyzing stock price trends
Technical Analysis is the study of past price trends in the hope of seeing where the stock may go next.
Fundamental Stock Analysis
Stock Fundamental Analysis mainly uses the information found in the company’s financial statements
Calculate P/E ratio
Price / Earnings
investors pay high PEs b/c they expect the company to grow into it
Dollar Cost Averaging
investing a fixed amount in the asset at a fixed time repeatedly for an extended period of time
(Dividend Reinvestment Plan)
reinvest the dividends in some firm's stock w/o brokerage fees; paid taxes; commission free