Investments Vocabulary Investments Vocabulary ReviewReview

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

2 for 1 stock split2 for 1 stock split

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

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

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

DemandDemand

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

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

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

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

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

CompoundingCompounding

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

InflationInflation

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

EconomicsEconomics

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

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

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

Common stockCommon stock

The central banking organization of The central banking organization of the U.S.?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 An investment able to be converted to cash very quickly.to cash very quickly.

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

InterestInterest

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

Income stocksIncome stocks

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

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

EPSEPS PE ratioPE ratio 52-week highs and lows52-week highs and lows History of stockHistory of stock Analysts predictions and outlook for Analysts predictions and outlook for

company and industrycompany and industry News related to companyNews related to company

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

Retained earnings.Retained earnings.

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

DividendsDividends

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

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

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

Earnings Per ShareEarnings Per Share

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

Net Income (Profit) divided by total Net Income (Profit) divided by total number of outstanding sharesnumber 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 It’s the Market Value per share divided by EPS.divided by EPS.

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

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

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

Share price is $20.Share price is $20. Total outstanding shares 25 million.Total outstanding shares 25 million. Earnings (profit) of $20 millionEarnings (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 = 500,000,000500,000,000

I love you guys.I love you guys.