Personal Finance EXAM

An investment strategy in which you spread your investment dollars among different markets, sectors, industries, and securities. The goal of the strategy is to protect the value of your overall portfolio in case a single security or market sector takes a serious downturn and drops in price.

Diversification

A group of companies producing similar products or services.

Industry

A collection of investments owned by one individual or organization.

Portfolio

An individual investor's ability to accept the loss of some or all of the money they have invested.

Risk Tolerance 

A group of stocks, often in one industry.

Sector

How quickly in percentage terms a company is growing their EARNINGS from year to year.

Earnings Growth Rate 

STOCK from a company that has a consistent record of relatively rapid GROWTH and earnings in all economic conditions.

Growth Stock 

a STOCK which pays higher than average dividends because the company chooses to retain only a small portion of the profits

Fixed income stock 

The relationship between the market value per share and earnings per share of a stock

Price Earnings Ratio 

A calculation that helps measure the level of risk in investing in a stock.

Beta Number

Fixed income and preferred stocks are considered conservative (Low Risk).

Conservative Risk 

Include growth stocks - particularly young companies with great potential. (Between Low and High Risk).

Moderate risk 

stocks that are highly unpredictable

Speculative Risk

A very HIGH risk stock from a company with potential for substantial earnings in the future.

Speculative Stock

stocks of large, well-established corporations with a solid record of profitability and present a low risk.

Blue Chip Stocks 

market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market

S&P 500 

a statistic that tracks how the prices of a specific set of stocks have changed such as the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite.

Stock index

What is the formula to find S&P 500 increase/ decrease?

It would be Cost Per Share times S&P 500 YTD% Change

What is the formula to find Beta increase/ decrease?

It would be (S&P 500 YTD% Change times Beta Number) Times Cost Per Share

bonds that are issued by financially stable companies or municipalities

Investment grade bonds

a mutual fund with a fixed number of shares that are issued by an investment company when the fund is first organized

closed-end fund

Amount that one share of a mutual fund is worth

Net Asset Value

a mutual fund with an unlimited number of shares that are issued and redeemed by an investment company at the investor's request

Open-end fund

the annual rate of return on a bond if the bond were held to maturity

Yield

a type of debt security that is issued by a company and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.

Corporate Bonds

Failure to pay back a loan

Default

A type of investment that pays interest on a set schedule. These investments include corporate, municipal, agency, and U.S. Treasury bonds.

Fixed-income investments

bonds with low credit quality that offer a high yield to maturity, also called junk bonds

high-yield bonds

An entity which issues and is obligated to pay principal and interest on a debt security.

Issuer

the difference between the face value and the bond price, expressed as a percentage of the bond price. (also referred to as the coupon rate)

interest rate of bond

Time at which payment to a bondholder is due

Maturity

the VALUE of a bond at its maturity; what the issuer promises to pay the bondholder when the bond matures

per value

The UNSCHEDULED partial or complete PAYMENT of the principal amount outstanding on a mortgage or other debt before it is due.

Pre-payment

the face value of a BOND (also referred to as face or par value)

principal of a bond

The DATE when the purchase or sale of a bond is transacted.

Trade date

A financial security that represents a promise to repay a fixed amount of funds

Bond

bundle of stocks or bonds that are in an index that tracks the overall movement of a market, but unlike a mutual fund can be traded like a stock

Exchange Traded Fund (ETF)

A FUND that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets

Mutual Funds

Business owned by stockholders who share in its profits but are not personally responsible for its debt

Corporation

PERSON who organizes, manages, and takes on the risks of a business

Entrepreneur

A business organization owned by 2 or MORE persons who agree on a specific division of responsibilities and profits

Partnership

Business whose shares are NOT traded publicly on the stock market

Private Corporation

Corporation in which stock is sold to ANYONE who has the means to buy it

Public Corporation

Business owned and managed by a SINGLE INDIVIDUAL

Sole Proprietorship

Most BASIC form of ownership, including voting rights on major issues, in a company

Common Stock

The PORTION of corporate profits paid out to stockholders

Dividend

The amount of money that REMAINS after subtracting the company's expenses from its revenue.

Earnings

SOMEONE who commits capital in order to gain FINANCIAL returns

Investor

Initial Public Offering, a corporation’s first offer to sell shares to the public

IPO

Special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

Preferred Stock

The CHANCE of LOSS from an event that cannot be entirely CONTROLLED

Risk

A share of ownership in a corporation

Stock

An announcement appearing in financial publications such as the Wall Street Journal announcing a company's Initial Public Offering (IPO).

Tombstone Ad

PERSON who evaluates and classifies risk to accept or reject them on behalf of the insurer

Underwriter

Indicates how much and how quickly the VALUE of an investment, market, or market sector CHANGES

Volatility