Category 3: Mortgages + Stocks & Bonds

What is a Mortgage?

A long-term loan where the lender has the right to take possession of the property (foreclosure) if the borrower fails to make payments.

What is the difference between a Fixed-Rate and an Adjustable-Rate Mortgage?

• Fixed-Rate: The interest rate stays the same for the entire life of the loan.

• Adjustable-Rate (ARM): The interest rate can go up or down depending on market conditions (which changes the monthly payment).

How do you calculate the monthly interest amount for a mortgage?

Monthly Interest = (Principal Balance x Annual Rate x Days in Month) / 365.25

What is the fundamental difference between a stock and a bond?

• Stock: Represents part ownership in a company. You are an owner.

• Bond: A fixed-interest asset; essentially a loan given to a government or company. You are a lender.

What do the abbreviations mean on a stock table?

• Hi/Lo: Highest/Lowest selling price in the last 52 weeks.

• Stock: The ticker symbol representing the company.

• Div: Dividend (cash paid to shareholders per share last year).

• Yld%: Dividend yield (Div / Current Price) x 100.

• P/E: Price-to-Earnings ratio (Yesterday's price / Annual earnings per share).

• Vol: Volume (number of shares traded yesterday, in hundreds/thousands).

What does the P/E ratio tell you, and how is it calculated?

• It indicates if a stock price is reasonable given the company's performance. Lower is generally better (cheaper relative to earnings).

• Formula: P/E Ratio = Price per Share / Earnings per Share

• Alternative: Earnings per Share = Price / P/E Ratio