19.1 Saving and Investment Planning

Question 1

• people buy stocks and bonds managed by an investment company
• money from many investors are used to invest in a variety of securities
• allow investors spread out their risk among many investments

Answer 1

mutual funds

Question 2

What are the safest investments?

Answer 2

investments made with the federal government

Question 3

this type of investment invests in businesses/entrepreneurs to receive a portion of the profits

• bonds
• venture capitalist
• commodities
• collectibles

Answer 3

venture capitalist

Question 4

a good savings plan or investment should ____ a reasonable return

Answer 4

a good savings plan or investment should earn a reasonable return (person should make money from it)

Question 5

interest that is computed on the amount saved plus the interest previously earned

Answer 5

compound interest

Question 6

if a stock increases in value and is then sold for more than its original cost

Answer 6

capital gain

Question 7

goal for those who desire financial security in the future

Answer 7

long term growth

Question 8

earnings from most savings and investments are ____

Answer 8

taxed

Question 9

• allows you to earn a higher interest rate than regular savings account
• usually requires a minimum deposit of $100 to $1000 or more
• must leave money on deposit for a certain time period
• penalties charged if money is withdrawn early

Answer 9

certificate of deposit / CD

Question 10

• grain, livestock, precious metals, currency, financial instruments
• investors purchase these in hopes of higher market prices in the future
• very risky

Answer 10

commodities

Question 11

people who want income for current living expenses

Answer 11

current income

Question 12

assurance that the money you have invested will be returned to you

Answer 12

safety

Question 13

A person who desires high income from an investment would be most concerned with:

• safety
• return
• liquidity
• risk

Answer 13

return

Question 14

_____ interest is when your account earns interest on top of interest

• variable
• simple
• compound
• none of these

Answer 14

compound

Question 15

Which of the following is investing for current income?

• retired person who needs to pay for living expenses
• business manager planning for retirement
• student putting away money for college
• family that wants to buy a vacation home

Answer 15

retired person who needs to pay for living expenses

Question 16

money you receive for letting others use your money

Answer 16

interest

Question 17

savings accounts at most financial institutions are insured up to $250,000 by the _____

Answer 17

federal government

Question 18

______ interest is when the rate changes

Answer 18

variable interest is when the rate changes

Question 19

On which type of interest would you earn more?

simple interest or compound interest

Answer 19

compound interest

Question 20

• old coins, works of art, antique furniture, other rare items
• bought with the hopes that their value will increase

Answer 20

collectibles

Question 21

The most liquid investment listed here is:

• rare coins
• real estate
• a savings account
• a house

Answer 21

savings account

Question 22

which investment is considered low risk (more than one)

• certificate of deposit
• stock
• commodities
• money market account
• mutual fund
• savings account
• venture capitalism

Answer 22

• certificate of deposit (CD)
• money market account
• savings account

Question 23

this type of investment deals with grain, livestock and precious metals

• stocks
• collectibles
• commodities
• corporate bonds

Answer 23

commodities

Question 24

Why do people invest in real estate?

Answer 24

• people purchase their own home for the sense of security and stability (they pay the mortgage every month and when they sell it can make all that money back - hopefully)
• people purchase property for rental income
• some buy vacant property in hopes that its value will increase
• examples - housing, farmland, apartment buildings and shopping malls

Question 25

When you invest money with individuals or businesses, it usually earns _____ interest than that paid by the government because there is ____ safety.

Answer 25

when you invest money with individuals or businesses, it usually earns _higher_ interest than that paid by the government because there is _less_ safety (there is a chance you won't get money back)

Question 26

the percentage of money earned on your savings or investment over a year

Answer 26

yield aka - rate of return & annual yield

Question 27

a _____ is made up of a group of stocks * bond fund * securities fund * commodity * mutual fund

Answer 27

mutual fund

Question 28

What are the 2 major financial goals of every saver and investor?

Answer 28

income or growth

Question 29

What are some choices for your saving and investing dollars?

Answer 29

* savings plans: savings account, certificate of deposit, money market account * securities: stock investments, bond investments, mutual funds * alternative investments: real estate, commodities, collectibles

Question 30

What are two reasons people save?

Answer 30

1. some save for years for a down payment to buy a home 2. some save for emergencies

Question 31

\_\_\_\_\_\_ is using your savings to earn even more money

Answer 31

_investing_ is using your savings to earn even more money

Question 32

true or false investments such as commodities, bonds and stocks are FDIC insured

Answer 32

false only savings plans (savings acct, CD's, money market account) are insured

Question 33

* pays a variable interest rate based on government and corporate securities * do not require long term deposits * have a large minimum balance requirement * earn higher interest than regular savings account but less than CD's

Answer 33

money market account

Question 34

A ____ company is a larger company that owns a smaller company

Answer 34

a _parent_ company is a larger company that owns a smaller company

Question 35

means you don't have to pay taxes on that income

Answer 35

tax exempt investments

Question 36

using your savings to earn more money

Answer 36

investing

Question 37

Higher yields = ____ risk of loss

Answer 37

higher yields equal greater risk of loss

Question 38

* a savings plan with a low balance * can deposit and withdraw money as needed * pay interest

Answer 38

savings account

Question 39

* lending money for use by businesses and governments * common investment * company or government uses money invested for their business activities

Answer 39

bond investments

Question 40

when an investment is sold for less than its original cost

Answer 40

capital loss

Question 41

What are 4 factors to consider when selecting an investment?

Answer 41

1. safety & risk - how likely are you to get your money back? 2. potential return - how much money are you going to earn? 3. liquidity - how quickly can it be changed to cash? 4. taxes - do you have to pay taxes on money earned?

Question 42

How does the economy benefit when savings are invested and used?

Answer 42

* People borrow to pay for homes, cars, college - when this money is spent the demand for goods and services increases so more jobs are created and more people have money to spend * Businesses borrow to operate or expand their business - this creates jobs and expands economic activity so more people have money to spend * Governments borrow for highways, schools and other public services - creates more jobs

Question 43

When you buy a ___ of ____ , you become part owner of a company

Answer 43

when you buy a share of stock, you become part owner of a company

Question 44

investments that can be turned into money quickly are called \_\_\_\_

Answer 44

liquid

Question 45

the percentage rateequal to the total amount of interest that a $100 deposit would earn based on a 365 day period

Answer 45

annual percentage yield (APY)

Question 46

requires that financial institutions give consumers information to compare savings accounts

Answer 46

The Truth in Savings Act (TISA)

Question 47

\_\_\_\_ represents debt

Answer 47

bonds

Question 48

What helps eliminate confusion caused by different interest calculation methods?

Answer 48

annual percentage yield (APY)

Question 49

\_\_\_\_\_ is done after building up some savings

Answer 49

investing is done after building up some savings

Question 50

What are stock investments?

Answer 50

* when you buy a share of stock * stock purchase made directly or indirectly through mutual funds * very common way of investing * results in capital gain or capital loss

Question 51

the ease with which an investment can be changed into cash without losing its value

Answer 51

liquidity

Question 52

the storage of money for future use

Answer 52

saving

Question 53

Which is more liquid? $5000 on deposit in bank or owning a piece of land that you bought for $5000

Answer 53

* the money in the bank * if you need that money right away you just go to bank and withdraw it * even though the land is a safe investment it might be difficult to sell the land right away and get the cash needed