Personal Finance C11

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inflation risk

rise in general lvl of prices

interest rate risk

result of changes in interest rates in economy

business failure risk

business experiences a loss or is less profitable than originally anticipated

market rise

political / social conditions affect market (i.e. covid)

liquidity

ability to buy/sell quickly w/o affecting investment’s value (interest-bearing checking & savings vs. CDs)

asset allocation

spreading assets among diff types of investments to lessen risk (fruits, veggies, meats)

diversification

investing in diff types within a category of investments (fruits: apple, pear, cherries)

conservative investments include…

gov. bonds, high-quality corp bonds, very safe corp stocks / mutual funds

gov. bonds

pledge of gov/municipality to repay a sum of $ + interest

US gov securities are backed by…

full faith & credit of the US gov & carried less risk of default

T-bills

4-, 8-, 13-, 26- or 52-week maturities

T-notes

maturities of more than 1 year but not more than 10 years

T-bonds

20-30 year maturities?

TIPS (inflation-protected securities)

principal increases with inflation and decreases with deflation

municipal bond

debt security issued by state/local gov (finances their ongoing activities & major projects i.e., airports, schools, toll roads/bridges)

general obligation bond

bond backed by the full faith, credit, and unlimited taxing power of the government that issues it

revenue bond

repaid from income generated by project it’s designed to finance

corporate bond

corp’s pledge to repay $ + interest

face value

dollar amt bondholder receives at maturity

bond indenture

legal doc. detailing conditions of bond

trustee

financially indep. firm acts as bondholder’s representative

debentures

bond backed by rep of the corp

mortgage bonds (secured bonds)

corp bonds secured by various assets of the firm

convertible bond

can be exchanged for # of shares of corp’s common stock

high-yield bonds (junk bonds)

higher interest & higher default risk

call feature

firm can call in/buy outstanding bonds from current bondholders

sinking fund

(semi)annual deposits made for later redeeming a bond issue

serial bonds

bonds of single issue that mature on diff dates