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Level 71

Equity Markets


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Residual Claim
Characteristic of common stock, in event of a firm's liquidation, common stockholders cannot be paid until claims of employees, the govt, short-term creditors, bondholders, and preferred stockholders are fist satisfied; after that, common stockholders…
Dual-Class Firms
firms that recapitalize with two classes of stock having different voting rights
cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors
straight voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
nonparticipating
Preferred stock is _______ in that the preferred dividend remains constant regardless of any increase in the firms earnings
Adjustable-Rate
The dividends of _______ preferred stock are adjusted periodically in response to changing market interest rates
Convertible Preferred Stock
can be converted into common stock at a predetermined ratio
Primary Offerings
New issues of securities are called _______ because they are sold in the primary market
Seasoned Offering
the primary issue of securities of a type already trading in the secondary market
Underwritten Offering
most common distribution method of securities, investment banker purchases securities from the company for guaranteed amount known as the net proceeds and then resells the securities to investors for greater amount, called the gross proceeds
Underwriter's Spread
The difference between the gross proceeds and net proceeds is the _______, which compensates the investment banker for the expenses and risks involved in the offering
Private Placements
New securities (usually debt) are directly sold to financial institutions (e.g. life insurance companies and pension funds) bypassing the open market
Rights Offering
occasionally a company places equity securities directly with its existing stockholders through a _______
liquidity
the ability to be used as, or directly converted to, cash
_______
is achieved on the secondary market if investors can trade large amounts of securities without affecting the prices
depth
A market is said to have _______ if there exist orders both above and below the price at which a security is currently trading
breadth
A market is said to have _______ if the orders that give the market depth exist in significant volume
resilient
A market is _______ if new orders pour in promptly in response to price changes that result form temporary order imbalances
Direct Search Market
secondary markets in which buyers and sellers must search each other out directly
brokers
agents for investors who help match buyers and sellers
Dealer Market
market in which trading in an issue is sufficiently active that some market participants maintain bid and offer quotations of their own; such dealers buy for, and sell for, their own inventory at their qu…
Auction Market
market that provides centralized procedures for the exposure of purchase and sale orders to all market participants simultaneously, thereby eliminating the expense of locating compatible partner sand bargaining for a favorable price
Over-the-counter
Securities not sold on one of the organized exchanges area traded in the _______ market; primarily a dealer market
NASDAQ
An index based on the stock prices of over 5000 companies traded on the NASDAQ Stock market. The NASDAQ market takes its name from the national association of securities dealers automated quotation system.
Market Order
an order to buy or sell at the best price available at the time the order reaches the exchange
Limit Order
an order to buy or sell at a designated price or at any better price
Specialists
members of an exchange who combine the attributes of both dealers and order clerks; they have an affirmative obligation to maintain both bid and offer quotations at all times for listed securities
efficient
The more rational information in a market, the more informationally _______ it will be
Passive
_______ investment philosophy demonstrates the belief that there are always market participants that out/underperforming or duplicating returns; uses dollar-cost averaging; "you can't consistently beat the market"
Active
_______ investment philosophy holds "maybe you can't beat the market, but I can" mentality; in the end, everyone is fallible, can't consistently beat the market 100% of the time; room for a lot of variation in this approach
inefficient
Both active and passive investment investment styles assume the market is informationally _______
Value
investment strategy, look for undervalued companies to invest in; rusting market to catch up eventually (must happen to gain profit); determine the value of the firm based off of some sort of discounted cash flow model
Growth
companies in a period of above avg growth. Low div. payout ratios, sell at higher P-E multiples than mature companies because of exceptional growth.
Technical
investment strategy, not based in intrinsic investment potential, but what day-to-day market is doing with a stock, based off recent price movements and what you think will happen based off of that
resistance, support
When a stock continues to rise to a certain price but continues to not go above that price, it is finding _______; conversely, when a stock continues to drop to a certain price and n…
Income
mature companies with high div. payout ratios (such as utilities)