Stock Market Basics
What does it mean to buy a stock?
You are buying partial ownership in a company.
What is Opportunity Cost?
The value of the next best alternative you give up when making a choice,
partial ownership share in a company, and you can earn money through dividends or price appreciation
Stock
What is diversification?
Spreading investments across different assets.
a key financial metric showing a company's profit allocated to each outstanding share
Earnings-Per-Share Ratio (EPS)
What is the biggest difference between the NYSE and NASDAQ?
NYSE is a physical exchange and NASDAQ is fully electronic
What is the graph showing the trade-offs between producing two goods, like butter and guns.
Production Possibilities Frontier
A collection of many different stocks, bonds, or other assets, managed professionally.
Mutual Fund
Why is investing all your money into one stock risky?
One loss can wipe out your portfolio.
a financial metric comparing a company's market value to its book value (assets minus liabilities)
Price-to-Book Ratio (P/B)
What happens to a stock’s price when demand exceeds supply?
The price rises.
The fundamental economic problem where wants are unlimited but resources are not.
Scarcity
This common financial instrument is essentially a loan an investor makes to a company or government entity that pays interest over a set period
Bonds
What is a stop-loss order?
An automatic sell to limit losses.
What does the P/E ratio compare?
Stock price to earnings per share.
What is an IPO?
When a private company first sells shares to the public.
a theory in finance stating that asset prices fully reflect all available information, making it impossible to consistently "beat the market" through skill or analysis
Efficient Markets Hypothesis
This type of retirement account allows your investments to grow tax-deferred until you withdraw them in retirement, at which point they are taxed as income.
Traditional IRA
an instruction to buy or sell a security at a specific price or better, giving investors control over trade execution and price protection, unlike a market order that executes immediately at the current price.
A limit order
The real value of an asset based on fundamental factors, as opposed to the price assigned by the market.
Intrinsic Value
What does market capitalization measure?
A company’s total value (price × shares outstanding).
This specific economic condition occurs when a country experiences both stagnant economic growth (high unemployment) and high inflation simultaneously
Stagflation
A retirement savings plan where you contribute after-tax money, allowing your investments to grow and be withdrawn tax-free in retirement
A key financial metric that measures an investment's risk-adjusted return, showing how much excess return (above a risk-free rate) you receive for the extra volatility (risk) taken on; a higher ratio indicates better performance
Sharpe Ratio
a valuation method that estimates an investment's current worth by projecting its future cash flows and bringing them back to their present-day value
Discounted-Cash-Flow (DCF)