Key Terms from the World of Finance

Key Terms AMEX – Stands for American Stock Exchange. Located in New York City, this stock exchange sells memberships, or seats, so that brokers can trade stocks. Broker – A professional trader who buys or sells stocks for individuals

Key Terms Capital Gains – profit realized from the sale of investments Commission – percentage of stock trade paid to a stockbroker Dividend – a share of a company’s net profits paid to shareholders.

Key Terms Dow Jones Industrial Average – DJIA – most commonly known stock market indicator. DJIA is an index of 30 industrial companies traded on the New York Stock Exchange.

Key Terms Growth Stock – a stock that pays no dividend, but the stockholder gains if the price of the stock increases. Income stock – a stock that pays dividends regularly

Key Terms Mutual Fund – a company that pools money from investors and uses it to buy stocks, bonds or money market instruments on the investors’ behalf. Provides diversification and professional management for investors.

Key Terms NASDAQ – an electronic marketplace enabling buyers and sellers to get together via computer to trade stocks New York Stock Exchange – NYSE – The oldest stock exchange in the US, founded in 1792.

Key Terms Preferred Stock – ownership share in a corporation with a guaranteed dividend that is paid before dividends paid on common stock. Round lot – purchase of stock in multiples of 100 shares

Key Terms Standards and Poor’s 500 Stock Index – S&P 500 – Index includes 500 stocks and is important to large-stock investors Stock – shares of ownership in a corporation Stock Certificate – an official document certifying that a person is an owner of a stock

Key Terms Stock Split – divisions of shares into a higher number of shares. A stock split often occurs when the price of a stock is considered too high by the corporation. A lower stock price will attract more stock buyers. Initial Public Offering – IPO – First sale of stock from a newly formed company

Rule of 72 To estimate how many years it will take a certain amount of money (left in a compound-interest bearing account) to double, take the interest rate and divide into 72.

Rule of 72 Example: $100 in an account that pays 2% will increase to $200 in 36 years. ◦ 72/2(interest rate) = 36 $100 in an account that pays 4% will increase to $200 in __ ? ___ years?

Rule of 72 Example: $100 in an account that pays 2% will increase to $200 in 36 years. ◦ 72/2(interest rate) = 36 $100 in an account that pays 4% will increase to $200 in 18 years? ◦ 72/4 = 18