Investments Vocabulary Review

When a company grants you twice as many shares and the price is cut in half? When a company grants you twice as many shares and the price is cut in half?

2 for 1 stock split 2 for 1 stock split

What is a blue chip stock? What is a blue chip stock?

Stock that is considered safe and issued generally by a strong and well respected company (which tend to be large cap) Stock that is considered safe and issued generally by a strong and well respected company (which tend to be large cap)

What is the amount of goods and services people are willing to buy? What is the amount of goods and services people are willing to buy?

Demand Demand

What is a penny stock? What is a penny stock?

A stock that typically sells for less than $1 per share. A stock that typically sells for less than $1 per share.

What is the difference between a bull market and a bear market? What is the difference between a bull market and a bear market?

Bull is optimistic about economy and stocks (which results in an increase in stock prices) and bear is pessimistic which results in a decrease in stock prices. Bull is optimistic about economy and stocks (which results in an increase in stock prices) and bear is pessimistic which results in a decrease in stock prices.

What is the process in which interest is earned on both the principal and on any previously earned interest? What is the process in which interest is earned on both the principal and on any previously earned interest?

Compounding Compounding

What is the name for the rise in the level of prices for goods and services? What is the name for the rise in the level of prices for goods and services?

Inflation Inflation

What is the study of the decisions that go into making, distributing and using goods and services? What is the study of the decisions that go into making, distributing and using goods and services?

Economics Economics

What type of stock remains stable during declines in the economy? What type of stock remains stable during declines in the economy?

Defensive stock (like utility companies who provides gas and electricity even in tough economic times) Defensive stock (like utility companies who provides gas and electricity even in tough economic times)

What type of stock provides the most basic form of corporate ownership and entitles you to voting privileges? What type of stock provides the most basic form of corporate ownership and entitles you to voting privileges?

Common stock Common stock

The central banking organization of the U.S.? The central banking organization of the U.S.?

Federal Reserve System (“The Fed”) Federal Reserve System (“The Fed”)

What is a liquid investment? What is a liquid investment?

An investment able to be converted to cash very quickly. An investment able to be converted to cash very quickly.

What is the cost of money or the cost to borrow money? What is the cost of money or the cost to borrow money?

Interest Interest

A type of stock that pays higher than average dividends compared to other stocks and those dividends are more predictable. A type of stock that pays higher than average dividends compared to other stocks and those dividends are more predictable.

Income stocks Income stocks

If a share price was $5 for a company that you were evaluating, would you buy it? If a share price was $5 for a company that you were evaluating, would you buy it?

Can’t fool you – you don’t have enough information to make that decision. Share price alone is not enough. What else should you look at? Can’t fool you – you don’t have enough information to make that decision. Share price alone is not enough. What else should you look at?

EPS EPS PE ratio PE ratio 52-week highs and lows 52-week highs and lows History of stock History of stock Analysts predictions and outlook for company and industry Analysts predictions and outlook for company and industry News related to company News related to company

Corporate profits that are put back into the company? Corporate profits that are put back into the company?

Retained earnings. Retained earnings.

Corporate profits paid out to shareholders. Corporate profits paid out to shareholders.

Dividends Dividends

What is the dividend yield? What is the dividend yield?

The annual dividend divided by the current share price. It provides an interest rate or a rate of return based upon its dividend. The annual dividend divided by the current share price. It provides an interest rate or a rate of return based upon its dividend.

What does EPS stand for? What does EPS stand for?

Earnings Per Share Earnings Per Share

How is earnings per share calculated? How is earnings per share calculated?

Net Income (Profit) divided by total number of outstanding shares Net Income (Profit) divided by total number of outstanding shares

What does PE ratio mean? What does PE ratio mean?

Price to Earnings Ratio. Price to Earnings Ratio. It’s the Market Value per share divided by EPS. It’s the Market Value per share divided by EPS.

What does PE Ratio tell you? What does PE Ratio tell you?

If a stock is overpriced (overvalued) or underpriced (undervalued) relative to other companies in the same industry. If a stock is overpriced (overvalued) or underpriced (undervalued) relative to other companies in the same industry.

A PE of 72 means that you are paying $72 per share for every $1 in earnings. A PE of 72 means that you are paying $72 per share for every $1 in earnings.

Share price is $20. Share price is $20. Total outstanding shares 25 million. Total outstanding shares 25 million. Earnings (profit) of $20 million Earnings (profit) of $20 million EPS is.8 (20 million/25 million) EPS is.8 (20 million/25 million) PE ratio of 25. (price/EPS) PE ratio of 25. (price/EPS) What is its market capitalization? What is its market capitalization?

25,000,000 x 20 = 25,000,000 x 20 = 500,000, ,000,000

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