Untitled Flashcards Set

Opportunity Cost of Compounding Interest

The potential higher returns from other investments, like stocks or real estate.

Benefits of Saving When You're Young

Saving early allows you to take advantage of compound interest, which helps money grow over time.

Opportunity Cost of Saving vs. Spending

Saving means sacrificing immediate consumption for future security or investment opportunities.

Reasons for Low Savings in the U.S.

Includes insufficient income, lack of financial literacy, consumer culture, or no structured savings plan.

How do Stocks Make Money?

Through dividends (periodic payments to shareholders) and capital gains (profit from selling stocks at a higher price).

Role of a Stockbroker

Buys and sells stocks on behalf of clients, guiding their investment decisions.

Securities and Exchange Commission (SEC)

Regulates the stock market to protect investors and ensure fairness.

Market Indicators

Reflect overall market performance, e.g., Dow Jones, S&P 500.

Security Exchanges

Places like NYSE and NASDAQ where securities are bought and sold.

Major Stock Exchanges

NYSE (New York Stock Exchange), AMEX (American Stock Exchange), NASDAQ (National Association of Securities Dealers Automated Quotations).

Financial Risk

Potential loss of investment.

Inflation Risk

Loss of purchasing power due to inflation.

Market Price Risk

Fluctuations in asset prices.

Liquidity Risk

Difficulty in selling an investment quickly.

Risk and Reward Relationship in Investing

Higher risk typically offers higher potential rewards, while lower risk tends to have more stable, but lower returns.

Real Rate of Return Calculation

Real Rate of Return = Nominal Return - Inflation Rate.

Shareholder Definition

An individual who owns a part of a company, entitled to dividends and voting rights.

Factors Impacting Credit Score

Payment history, amounts owed, length of credit history, new credit, and types of credit used.

Importance of Credit Score

Impacts loan approval, interest rates, and the terms of credit.

Loan Terms and Credit Score

A higher credit score typically results in better loan terms (lower interest rates, higher approval chances).

Purpose of Buying Insurance

Protects against large financial losses due to unexpected events.

Insurance Terms: Deductible

The amount paid before insurance covers expenses.

Insurance Terms: Premium

Regular payment made to maintain insurance.

Insurance Terms: Co-pay

A fixed payment for services like doctor visits.

Over-Insured Definition

Having too much coverage, leading to unnecessary costs.

Credit Card Benefits

Convenience, rewards programs, and building credit history.

Credit Card Risks

High-interest rates, accumulating debt, and fees if not managed well.

Annual Fee in Credit Cards

A yearly charge for having a credit card.

Finance Charge Definition

Interest charged on carried-over balances.

Grace Period in Credit Cards

Timeframe where no interest is charged if the full balance is paid.

Types of Mortgages

Fixed-rate, adjustable-rate, interest-only, government-backed loans.

PMI Meaning

Private Mortgage Insurance required if less than 20% is put down on a conventional mortgage.

Factors Impacting Property Taxes

Property location, market demand, and home condition.

Homeowners Insurance Purpose

Protects against loss or damage from disasters.

Setting Mortgage Interest Rates

Influenced by market conditions, inflation, and central bank rates.

Economic Dilemma Caused by Scarcity

Limited resources must meet unlimited wants, forcing choices.

Markets Definition

Places where goods and services are exchanged.

Demand Definition

Willingness and ability of consumers to buy at various prices.

Supply Definition

Quantity of goods and services producers are willing to sell at various prices.

Opportunity Cost Definition

Value of the next best alternative that you forgo when making a decision.

Cost-Benefit Analysis Definition

Evaluating benefits versus costs to determine if worth pursuing.

Incentives in Economics Definition

Factors motivating individuals or organizations to take certain actions.

Marginal Thinking in Decision-Making

Evaluating whether the benefit of one more unit outweighs its cost.