Exam 2 Vocab - PFD

Ch. 7-14

saving

a plan to set aside a certain amount of your net cash flow to accomplish a short term goal

investing

the use of money to earn money for the purpose of accomplishing long-term life goals

investment hierarchy

level-by-level process of when and how to save and invest

interest

the amount a borrower pays to lender for the use of the money

dividends

payments made by a company to ots stockholders from excess earnings

increase in value

growth in the market price of an investment

principal

the amount that is put into an investment

rate of return

the gain from an investment as a percent of the principal invested

compounding

earning interest on interest already; the process adds significantly to the growth of an investment

S&P 500

500 large U.S. corporations whose stock prices comprise a widely used index for measuring changes in stock market values

risk premium

the additional return that an investor or lender earns for any extra risk involved in the investment or loan

behavior gap

the difference between the profits of an individual investor operating on emotion and the overall results of the market

passive investors

those who do not participate in the daily business of their investments (ex: a stockholder)

bond

a loan to a corporation or government agency

mutual fund

a pool of investment money where investors have hired a manager who handles the investment of the money and returns are shared by the investors

bond or fixed income funds

funds that have an investment objective of producing a steady stream of interest income

stock or equity funds

funds that invest in stocks of companies based on various objectives

Morningstar

a Chicago-based investment research firm that complies and analyzes fund, stock and general market data

index fund

a mutual fund that makes investments so that its returns mirror the returns of the total index

expense ratios

the fees paid by investors to the managers of a mutual fund, typically ranging from 0.1% to 2% of the amount invested

Securities and Exchange Commision (SEC)

independent agency of the U.S. federal government with a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation

load

a cost associated with some mutual funds that is basically a sales charge or commission paid when shares in the fund are purchased or sold, used to compensate a broker, financial planner, advisor, or other sales intermediary

Portfolio

a group of financial assets, such as stocks, bonds, funds, and cash equivalents

annual percentage rate (APR)

the simple annual interest rate including any application or annual fees (not penalty fees) charged by the creditor

installment credit

a type of credit that has a fixed number of payments, in contrast to revolving credit

payday loans

a type of short-term loan for a relatively small amount at a very high rate of interest; the borrow typically writes a postdated personal check for the amount they wish to borrow plus a fee in exchange for cash

credit report

a record of a borrower’s credit history from a number of sources, including banks, credit card companies, collection agencies, and governments

credit score

a number reflecting a borrower’s creditworthiness used by lenders to evaluate the probability that a borrower will repay debts

debt-to-income ratio

the total of your monthly recurring debt payments divided by your monthly gross income

collateral

something pledged as security for repayment of a loan, to be forfeited in the event of a default

bankruptcy

the legal status of a person or business that cannot repay the debts owed to creditors, usually imposed by a court order and often initiated by the debtor

cosign

taking responsibility for another person’s debt, involving a legal obligation by the cosigner to make payment on the debt if the other person defaults

credit history

a record of a burrower’s repayment of debts

FICO score

a person’s credit score calculated with software from Fair Isaac Corporation (FICO)

Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009

credit card reform legislation that aims to “establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes”

finance companies, payday lenders, title loan companies, etc.

non-bank companies that make loans but do not accept deposits and avoid banking regulations

debt snowball

systematic debt payoff plan that focuses on eliminating one debt at a time

identity theft

the use of someone’s financial and person information to access their financial accounts (such as bank accounts or credit cards), create new financial accounts in their name, or acquire a false identity

phishing

fraudulent email messages or phone calls that appear to come legitimate email messages or phone calls that appear to come from legitimate sources, but which are really from cyber criminals trying to obtain your identity information for use in identity theft