Personal Finance: Bonds, Stocks, and Investment Strategies

What are bonds?

Bonds are liabilities of the issuer, representing a loan made by the investor to the borrower.

Do individuals investing in bonds receive dividends?

No, individuals investing in bonds receive interest payments, not dividends.

Can bonds be purchased or sold prior to maturity?

Yes, bonds can be bought and sold in the secondary market before maturity.

Does income from bonds vary every year?

Typically, income from bonds is fixed and does not vary; however, some bonds may have variable interest rates.

Is the principal invested in bonds returned at the time of maturity?

Yes, the principal invested in bonds is returned to the bondholder at maturity.

What are mutual funds?

Mutual funds are collections of diversified securities managed by a professional investment company.

What characterizes a bull market?

A bull market is characterized by investor optimism and rising stock prices.

What is arbitration in finance?

Arbitration is a process to settle disputes between a brokerage firm and its clients.

What is a portfolio?

A portfolio is a collection of securities assembled to meet common investment goals.

What is the first step to reach an investment goal?

The first step is to determine the rate of return needed to achieve the investment goal.

What represents ownership in a corporation?

Ownership in a corporation is represented by stocks.

What type of stocks have no maturity date?

Common stocks have no maturity date.

What is a common investment objective?

Enhancing current income is one of the most frequent investment objectives of individuals.

What is business risk?

Business risk is related to the firm's ability to meet operating expenses in a timely manner.

What is market risk?

Market risk results from the behavior of investors buying and selling securities, leading to price swings.

What is a fully compounded rate of return?

A fully compounded rate of return is an investment that earns interest on both the initial principal and the accumulated interest.

What is the relationship between risk and expected return?

The higher the risk, the higher the expected return.

How is corporate ownership evidenced?

Corporate ownership by an investor is evidenced by common stocks.

What are the main advantages of common stock investments?

The main advantages are attractive returns and voting rights.

How is stock profitability measured?

Stock profitability is often measured by return on equity.

What are aggressive growth funds?

Aggressive growth funds are highly speculative investments that seek large profits from capital gains.

What are target-date funds?

Target-date funds are balanced funds that automatically adjust asset allocation as an investor ages.

What does leverage mean in investing?

Leverage means using borrowed money to magnify returns.

Who owns a mutual fund?

The actual ownership of a mutual fund is in the hands of the shareholders.

What is the benefit of starting early to save for retirement?

The biggest financial benefit is related to compound interest.