economics 8.3b-8.6a

Defined benefit plan

promises to pay a certain amount per month after retirement based on salary and length of service

Defined contribution plan

both employer and employee contribute to retirement; not a promised amount (ex. 401k)

Extended warranty

insurance for repairs or replacement of a certain item

Collateral

something of value a lender can claim in the event of non-payment

Homeowners insurance

required if a person takes out a loan to buy a house; in the case of non-payment, the bank forecloses to recover the balance of mortgage

Foreclosure

bank sells home or property

Premium

the amount that one pays for a policy

Deductible

the amount you pay each year before the insurance company pays its share on a claim

Copay

small portion paid for the cost of a doctor’s visit

2010 affordable care act (ACA)

example of healthcare insurance

Age, Driving Courses, History, Health Screenings, Student Grades, Healthy Lifestyles

Behaviors that Lower Premiums

Unrealized Loss

holding securities that have lost value

Realized Loss

security sold at a loss

Diversification

investing in different types of investments within an asset class

Traditional IRA

reduces taxable income for the year it is invested

Roth IRA

contributions are taxable while interest earned on the contributions are not taxable

Educational Savings Account

parents saving for the education of their children

Stocks

resources corporations gather by selling ownership in their business

Corporation

legal entity which is distinct from the people who own it

Shares

equal portions of a corporation's stock

Stockholder

owns a portion of a business determined by the amount of stock he holds

Limited liability

stockholder does not have to pay firm debts, they only lose their investment

Dividends

shares of a corporation’s profit

Bond

guarantees the bond holder the amount of the original investment plus interest by a certain date

Mutual funds

investment companies that combine the resources of all their shareholders and invest the money in a wide variety of areas

Liquid investments

assets that flow easily because they can be converted easily into other investments or cash

Amount invested, rate of return, and time (ART)

3 elements to determine when investing

Bid

an offered price put forth by a buyer

Initial Public Offering (IPO)

a new corporation initially decides to sell shares of stock

Blue-chip stocks

stock of large companies that have been in existence for a long time

Risk-averse investor

chooses a lower risk investment when presented with investment options

Compulsory saving

Legally forcing individuals to save a certain portion of their salary

Social security

All citizens of America must pay into this old-age insurance fund