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Intro to Business > 19.3 bonds and mutual funds > Flashcards

19.3 bonds and mutual funds Flashcards

1
Q

What affects the value of a bond?

A
  • changing interet rates and the credit rating of the borrowing organization
  • if the bond’s stated interest rate is lower than interest rates on similar bonds then investors will want to buy the bond for less than its face value
  • if the bond’s stated interest rate is higher than interest rates on similar bonds than the seller of the bond will want to receive more than its face value
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2
Q

Why do governments and corporation sell bonds?

A

to raise money for current operations or future expansions

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3
Q

value of each share in a mutual fund

A

net asset value (NAV)

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4
Q

the price of a mutual fund share is most affected by

  • current tax rates
  • the value of investments
  • current foreign rates
  • the value of housing
A

the value of investments

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5
Q

bonds represent ____

A

debt

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6
Q

What is a safe investment for people with small amounts of money to invest?

A

US savings bonds

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7
Q

bonds represent ____ of a company and stocks represent ____ in a company

A

bonds represent debt of a company and stocks represent ownership in a company

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8
Q

bonds issued by local and state governments

A

municipal bonds

aka munis

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9
Q

true or false

a bondholder is part owner of a company

A

false

a stockholder is part owner of a company

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10
Q

What is the different between investing in bonds and investing in stocks?

A
  • when you invest in stock you become an owner in the company
  • when you buy a bond you are lending money to the company
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11
Q

gotham city wants to pave a new street, batman boulevard. how can it fund the project?

  • sell stock
  • encourage local citizens to purchase municpal bonds
  • purchase a bond fund
  • do a hostile takeover of another city
A

encourage local citizens to purchase municipal bonds

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12
Q

describe mutual funds

A
  • is managed by a professional who uses the investors’ money to buy and sell a wide variety of stocks or bonds
  • the value and income of the investments made determine the value of the mutual fund shares
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13
Q

place where bonds are bought and sold

A

Bond Market

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14
Q

Each bond has a ____ value, also called the maturity value

A

each bond has a face value, also called the maturity value

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15
Q

interest is paid to a bondholder based on the bond’s

  • maturity (face) value and stated interest rate
  • stated interest rate and market value
  • maturity date and maturity (face) value
A

maturity (face) value and stated interest rate

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16
Q

What are the 6 main types of mutual funds?

A
  1. Aggressive growth stock funds - seek quick growth, but also have higher risk
  2. Income funds - specialize in stocks that pay regular dividends
  3. International funds - invest in stock of companies from around the world
  4. Sector funds - buy stocks of companies in the same industry such as health care, energy or telecommunications
  5. Bond funds - specialize in corporate bonds
  6. Balanced funds - invest in both stock and bonds
17
Q

Which of the following is NOT true about a mutual fund?

  • it is less risky than purchasing individual stocks
  • it is managed by a professional fund manager
  • a fee is charged to manage the fund
  • it will not help you diversify your portfoloio
A

it will not help you diversify your portfolio

18
Q

an investment fund set up and managed by a company that receives money from many investors

A

mutual fund

19
Q

more than 60,000 different ____ funds are available to investors around the world

A

more than 60,000 different mutual funds are available to investors around the world

20
Q

What are some different objectives of mutual funds?

A
  • some emphasize growth stocks
  • some emphasize stocks that pay high dividends
  • some emphasize international stocks
21
Q

Describe Series EE savings bonds.

A
  • can buy from $50-$10,000 range
  • is bought at half its face value (so you pay $25 for a $50 bond)
  • length of time bond is held determines the amount of interest
  • interest is exempt from state and local taxes
22
Q

Describe a corporate bond.

A
  • each bond has a face value
  • interest is paid to the investor periodically (usually 2 times per year)
  • the interest paid is based on the face value and the stated interest rate
  • on the bond’s maturity date, the face value is repaid to the investor
23
Q

true or false

interest rates in an economy affect the value of a bond

A

true

24
Q

Describe the I Savings bond.

A
  • pay an interest rate that changes with inflation
  • purchased at face value (you pay $50 for a $50 bond)
25
Q

A ____ buys stocks of companies in the same industry such as healthcare, food or finance

  • aggressive-growth stocks fund
  • sector fund
  • bond fund
  • income fund
A

sector fund

26
Q

a series EE savings bond purchased for $50 would have a face value of:

  • $50
  • $100
  • $150
  • $200
A

$100

27
Q

bonds issued by corporations

A

corporate bonds

28
Q

What do you become when you buy a bond?

A

creditor

29
Q

municpal bonds are issued by

  • corporations
  • federal govt
  • international companies
  • state and local govts
A

state and local governments

30
Q

a certificate representing a promise to pay a definite amount of money at a stated interest rate on a specified due date

A

bond

31
Q

When you buy a ____, you are lending money to the organization selling the ____.

A

when you buy a bond, you are lending money to the organization selling the bond

32
Q

What is an advantage of municipal bonds?

A

the interest earned on these bonds is usually tax exempt from federal and state income taxes

33
Q

Most municipal bonds are considered ____ investments than corporate bonds

A

most municipal bonds are considered safer investments than corporate bonds

34
Q

What is the difference between treasure bills (t-bills) and treasure notes (t-notes)?

A

t-bills are for short term (91 days to 1 year)

t-notes are longer term (1-10 years)

35
Q

the due date of a bond

A

maturity date

36
Q

What are 3 types of government bonds?

A
  • municipal bonds
  • US savings bonds
  • Treasure bills
37
Q

What are t-bonds?

A
  • treasure bonds
  • involve long term borrowing with a maturity of up to 30 years
38
Q

which of the follwoing is not one of the types of US savings bonds discussed in your book and / or class?

  • I
  • EE
  • ZZ
A

ZZ

Intro to Business (41 decks)

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