personal finance chapter 11 quiz

discount bond

purchased for less than the maturity value

annual report

a yearly statement of the financial condition, progress, and expectations of an organization

annuity

payment received every year

bonds

certificates that represent money the government has borrowed from private citizens

Diversification

Spreading out investments to reduce risk

financial advisors

professional investment planners

futures

contracts to buy or sell commodities at a particular date in the future at a price specified today

inflation

A general and progressive increase in prices

investing

use of savings to earn a financial return

mutual fund

a professionally managed group of investments bought using a pool of money from many investors

option

the right to buy or sell a commodity or stock for a specified price within a specified time period

penny stocks

the stocks of small companies that are priced below $1 per share

risk

a chance that an investments value will decrease

rule of 72

how long it takes for money to double in value

stock

A share of ownership in a corporation.

full service broker advantage disadvantages

adv: professional opinions, monthly update letters

dis: high commission, have to call for a trade to go through

discount broker advantages disadvantages

adv: reduced commission, online

dis: little to no advice, need to be experienced

5 types of risk

-interest rate risk

-political risk

-market risk

-non market risk

-company risk

3 reasons for investing

-beat inflation

-increase wealth

-fun and challenging

treasury bills

mature in less than one year

treasury notes

mature between two and ten years

Treasury Bonds

matured in ten + years

put and take account

first stage, put paychecks into checking account, pay short term expenses: bills, food

beginning investments

20s-30s invest small amount in low risk low return

systematic investment

30s 40s 50s long range goals, invest in regular basis

strategic investment

goal to retire in 5-10 years, careful management to maximize growth

speculation

extra money to invest after investing regularly, high risk high return options

rule of 72

72/interest rate

7 sources of financial info

-online investor education

-newspapers

-financial magazine

-investor services and newsletters

-annual reports

-brokers

-financial advisors

7 rules to follow while investing

-define goals

-go slowly

-follow through: start now

-keep good records

-get good advice

-stay updated

-know your limits

3 low risk low return options

-bonds

-US gov saving bonds

-treasury securities

4 medium risk medium return

-stocks

-mutual funds

-annuities

-real estate

4 high risk high return options

-futures

-penny stocks

-options

-collectibles