Questions and Answers
What are Blue-Chip Stocks?
What are Growth Stocks?
Issues of a company expanding faster than the economy and industry average
What defines a Defensive Stock?
Issues that are resistant to a recession
What is an Income Stock?
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What are Cyclical Stocks?
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What do American Depositary Receipts (ADRs) do?
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What characterizes Preferred Stock?
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What is Cumulative Preferred Stock?
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What is Non-Cumulative Preferred Stock?
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What is Participating Preferred Stock?
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What does Callable Preferred Stock allow companies to do?
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What is Convertible Preferred Stock?
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What are Preemptive Rights?
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What are Warrants?
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What are Options in finance?
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Study Notes
Stock Classifications
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Blue-Chip Stocks: Represent major companies with a solid track record of steady earnings and consistent dividend payments. Considered low-risk investments.
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Growth Stocks: Issued by companies experiencing rapid growth in sales, earnings, and market share, typically outperforming the broader economy and industry benchmarks.
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Defensive Stocks: These stocks tend to maintain stable performance during economic downturns, often found in sectors like utilities and essential goods (e.g., pharmaceuticals, food).
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Income Stocks: Known for providing higher-than-average dividends in relation to their stock price, appealing to investors seeking regular income.
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Cyclical Stocks: Associated with companies whose earnings significantly rise and fall with the economic cycle, meaning performance is tied to economic conditions.
Stock Instruments
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American Depositary Receipts (ADRs): Financial instruments that allow investors to trade foreign stocks on US exchanges, facilitating international investments.
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Preferred Stock: A class of stock with no voting rights that guarantees a fixed dividend rate, representing the maximum return for preferred shareholders.
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Cumulative Preferred Stock: Ensures that any unpaid dividends must be paid to preferred shareholders before common stockholders receive dividends.
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Non-Cumulative Preferred Stock: Does not require companies to pay dividends in arrears, meaning missed dividend payments are lost to shareholders.
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Participating Preferred Stock: Offers potential for higher dividends if the company performs well, especially when common dividends surpass a set threshold.
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Callable Preferred Stock: Gives the issuing company the right to repurchase shares at a predetermined price in the future, providing strategic financial flexibility.
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Convertible Preferred Stock: Combines fixed income with potential for capital appreciation, allowing holders to convert into common shares at a set price.
Rights and Options
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Preemptive Rights: Rights granted to existing shareholders to purchase additional shares below market value, allowing them to maintain their ownership percentage during new issuance.
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Warrants: Long-term instruments issued with preferred stocks or bonds, enabling holders to buy common shares at a set price above current market value.
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Options: Contracts that provide the right to buy or sell an underlying asset within a specific timeframe, typically used for hedging, speculation, and income generation, with a term usually under nine months.
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Description
Test your knowledge on various classifications of stocks with this flashcard quiz. Learn about blue-chip stocks, growth stocks, and defensive stocks, and understand how they differ in performance and risk. Perfect for preparing for finance exams or enhancing your investment knowledge.
