Fin 3244 Exam 1 Study Guide

Fin 3244 Exam 1 - Exam1Review Bring#2pencil BulletPoints 1 i ii iii iv v Provideliquidity Exposuret

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Exam 1 Review 1/26/12 25 multiple choice questions Bring #2 pencil Bullet Points 1. Risk levels of short term securities i. Generally carry little or no risk ii. Provide liquidity iii. Primary risk results from inflation risk iv. Risk of default is virtually nonexistent v. Exposure to capital loss is low 2. Investment securities i. Stocks i. Common stock (CS) 1. Equity investment that represents ownership in a corporation;  each share represents a fractional ownership in the firm 2. Most popular investment vehicle
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ii. Preferred stock (PS) 1. Ownership interest in a corporation; similar to common stock but  has a stated dividend rate, payment of which is given  preference over CS ii. Bonds i. Long term debt instruments, issued by corporations and governments,  that offer a known interest return plus return of the bond’s face value at  maturity iii. Convertible securities i. A fixed income obligation with a feature permitting the investor to convert  it into a specified number of shares of CS ii. Provide the fixed income benefit of a bond (interest) while offering the  price appreciation (capital gain) potential of CS iv. Mutual funds i. A company that raises money from sale of its shares and invest in and  professionally manages a diversified portfolio of securities ii. Money Market Mutual Funds   1. Mutual funds that invest solely in short-term investment vehicles v. Derivative securities i. Derive their value from an underlying security or asset ii. Typically possess high levels of risk, because they usually have  uncertain returns or unstable market values iii. High levels of expected return iv. Futures 1. Legally binding obligations stipulating that the seller of the  futures contract will make delivery and the buyer of the contract  will take delivery of an asset at some specific date, at a price  agreed on at the time the contract is sold 2. Highly specialized, high risk 
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3. Used primarily to trade commodities  v. Options 1. Securities that give the investor an opportunity to sell or buy  another security at a specified price over a given period of time 2. Used to take advantage of an anticipated change in the price of  CS 3. Purchaser is not guaranteed a return and could even lose the  entire amount invested if the option does not become attractive  enough to use 4. Two common types of options are puts and calls 3. Types of income i. Active Income i. Made up of income earned on the job as well as most other forms of  noninvestment income ii. Portfolio Income i. Earnings generated from various types of investments ii.
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This note was uploaded on 04/02/2012 for the course FIN 3244 taught by Professor Peterson during the Spring '10 term at Florida State College.

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Fin 3244 Exam 1 - Exam1Review Bring#2pencil BulletPoints 1 i ii iii iv v Provideliquidity Exposuret

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