Finance Vocab Quiz 2

Fixed Rate Mortgage

Mortgage that locks in the interest rate paid by the borrower over the life of the loan.

Mortgage Backed Securities

Securities issued by a financial institution that are backed by a pool of mortgages; also called pass-through securities.

Pre-Payment risk

The possibility that the assets to be hedged may be prepaid earlier than their designated maturity; also applies to mortgages.

Adjustable rate mortgage

Mortgage that requires payments that adjust periodically according to market interest rates.

Amortization schedule

Schedule developed from the maturity and interest rate on a mortgage to determine monthly payments broken down into principal and interest

Common stock

Securities representing partial ownership of a corporation.

Organized exchange

Visible marketplace for secondary market transactions.

Secondary stock offering

A new stock offering by a firm that already has stock outstanding.

Standard & Poors 500

Is a value-weighted index of stock prices of 500 large U.S. firms.

Private Equity

When a firm is created, its founders typically invest their own money in the business, These funds are referred to as ___ because the business is privately held and the owners cannot sell their shares to the public.

Dow Jones Industrial Average

A price weighted average of stock prices of 30 large U.S. firms.

Wilshire 5000 Total Market Indies

The Index was created in 1974 to reflect the values of 5,000 U.S. stocks, although the number of stocks included has changed over the years.

New York stock exchange indexes

Provides quotations on indexes that it has created. The Composite Index is the average of all stocks traded on the ___. It is an excellent indicator of the general performance of stocks traded on the ___.

Nasdaq stock indexes

The website provides quotations on indexes of stocks traded on the ____. These indexes are useful indicators of small stock performance because many small stocks are traded on that exchange.

Time deposits

Deposits that cannot be withdrawn until a specified maturity date.

Demand Deposit Account

Deposit account that offers checking services.

Growth & Income Funds

Mutual funds that contain a combination of growth stocks, high-dividend stocks, and fixed-income bonds.

Growth Funds

Mutual funds containing stocks of firms that are expected to grow at a higher than average rate; they are appropriate for investors who are willing to accept a moderate degree of risk.

Open-End Funds

Mutual funds that are willing to repurchase the shares they sell from investors at any time.

High-yield Funds

Mutual funds composed of bonds that offer high yields (junk bonds) and have a relatively high degree of credit risk.

Income Funds

Mutual funds composed of bonds that offer periodic coupon payments.

Mutual Funds

An investment company that sells shares representing an interest in a portfolio of securities.

Net Asset Value

Financial characteristic used to describe a mutual fund’s value per share; estimated as the market value of the securities composing the mutual fund, plus any accrued interest or dividends, minus any expenses. This value is divided by the number of shares outstanding

Discount Brokerage Firms

Brokerage firms that focus on executing transactions.

Full service brokerage firms

Brokerage firms that provide complete information and advice about securities in addition to executing transactions.

Registration statement

Statement of relevant financial information disclosed by a corporation issuing securities; it is intended to ensure that the issuing corporation provides accurate information.

Best Efforts Agreement

Arrangement in which the securities firm does not guarantee a price on securities to be issued by a corporation but states only that it will give its best effort to sell the securities at a reasonable price.

Prospectus

A pamphlet that discloses relevant financial data on the firm and provisions applicable to the security.