Ch11: Investing Basics and Evaluating Bonds Flashcards
Goals can be stated in terms of _____ or ______
money, things
Goals should be ____ and _____
specific, measurable
An emrgency fund should be ________ of income
3 months
two additional sources of cash for emergencies
pre-approved line of credit, cash advance on credit card
High rate of return means _______
greater risk
Risk-return Trade Off
rate of return corresponds to risk
Inflation Risk
during periods of high inflation, the return on investment may not keep up
Interest Rate Risk
value of bonds or stock fluctuates with interest rate; high interest rate, decrease in value
Business Failure Risk
stock and corporate bonds affected by success of company (Toys R Us, Sears, Claire’s, Penney;s)
Market Risk
risk of being in the market vs in a risk-free asset
_______ _______ offers the most growth
common stock
______ ______ also offer growth
mutual funds
Liquidity is dependent on 2 factors:
ability to buy or sell an investment quickly WITHOUT greatly affecting the value
CDs have penalties for ______ ______
witdrawing early
Interest-bearing _____ and _____ are very liquid
checking/savings accounts
Asset Allocation
spreading assets among different types of investments
Types of investments
stocks, bonds, risk-free assets, real-estate, foreign stocks
Government Bond
written pledge to repay a sum of money at maturity along with periodic insterst payments
What is the purpose of a gov bond?
funding national debt and costs of government at all levels
Treasury Bills and treasury note have a minumum of _____
$100
the Ts in order from shortest to longest maturation
T Bills, T notes, TIPS, T bonds
Ts in order from lowest to highest interest rate
t bills, t notes, t bonds
Municipal bond
issued by state or locan governmnet to fund building projects
General Obligation Bonds
backed by full faith, credit, and taxing authority of the issuing state or government
Revenue bonds
repaid from money generated by the project funded by the investment, such as a toll bridge
Corporate bonds
written pledge to repay a specified amount of money with interest
4 characterstics of corporate bonds
interest only, safer than stocks, fixed income, a form of debt financing
Debenture
only insured by reputation of isuing company
how is current yield determined?
annual interest/current price
what is yield?
rate of return earned by investor that holds bond to maturity
Bonds pay in _____; stocks pay in _____
interest, dividends
