D367 Innovation in Finance - Set 1 - Part 3

Correct Answer: Bond prices and interest rates move in opposite directions

When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise, as the fixed coupon payments become more or less attractive relative to new bonds issued at the current rates.

Correct Answer: To make the stock more affordable to investors

A stock split increases the number of shares outstanding while reducing the price per share, making the stock more accessible to a broader range of investors without changing the company's market value.

Correct Answer: A company issues shares to the public for the first time

When a company "goes public," it offers shares to the public for the first time through an initial public offering (IPO), allowing investors to buy ownership in the company.

Correct Answer: A contract between the bondholder and the issuer

A bond indenture is a legal contract that outlines the terms and conditions of the bond, including interest payments, maturity date, and any covenants.

Correct Answer: Common stock has voting rights, while preferred stock typically does not

Common stockholders typically have voting rights in company decisions, while preferred stockholders usually do not, though they have a higher claim on dividends.

Correct Answer: Voting rights

Common stockholders typically have the right to vote on important corporate matters, such as electing the board of directors, while preferred stockholders generally do not.

Correct Answer: To spread risk across different assets and reduce overall risk

Diversification reduces the risk of a portfolio by spreading investments across different assets, sectors, or geographies, so the performance of one asset does not overly affect the entire portfolio.

Correct Answer: A pool of funds from many investors used to invest in a diversified portfolio of securities

A mutual fund pools money from many investors to invest in a diversified portfolio of assets, such as stocks, bonds, or other securities, managed by a professional fund manager.

Correct Answer: The ratio of a company's stock price to its earnings per share

The P/E ratio compares a companys current stock price to its earnings per share, helping investors evaluate the stocks relative valuation.

Correct Answer: Blockchain

Blockchain is the distributed ledger technology underlying cryptocurrencies like Bitcoin. It records transactions across a decentralized network in a secure, transparent, and tamper-resistant way, without needing a central authority.