Ch11: Investing Basics and Evaluating Bonds

Question 1

Goals can be stated in terms of _____ or ______

Answer 1

money, things

Question 2

Goals should be ____ and _____

Answer 2

specific, measurable

Question 3

An emrgency fund should be ________ of income

Answer 3

3 months

Question 4

two additional sources of cash for emergencies

Answer 4

pre-approved line of credit, cash advance on credit card

Question 5

High rate of return means _______

Answer 5

greater risk

Question 6

Risk-return Trade Off

Answer 6

rate of return corresponds to risk

Question 7

Inflation Risk

Answer 7

during periods of high inflation, the return on investment may not keep up

Question 8

Interest Rate Risk

Answer 8

value of bonds or stock fluctuates with interest rate; high interest rate, decrease in value

Question 9

Business Failure Risk

Answer 9

stock and corporate bonds affected by success of company (Toys R Us, Sears, Claire’s, Penney;s)

Question 10

Market Risk

Answer 10

risk of being in the market vs in a risk-free asset

Question 11

_______ _______ offers the most growth

Answer 11

common stock

Question 12

______ ______ also offer growth

Answer 12

mutual funds

Question 13

Liquidity is dependent on 2 factors:

Answer 13

ability to buy or sell an investment quickly WITHOUT greatly affecting the value

Question 14

CDs have penalties for ______ ______

Answer 14

witdrawing early

Question 15

Interest-bearing _____ and _____ are very liquid

Answer 15

checking/savings accounts

Question 16

Asset Allocation

Answer 16

spreading assets among different types of investments

Question 17

Types of investments

Answer 17

stocks, bonds, risk-free assets, real-estate, foreign stocks

Question 18

Government Bond

Answer 18

written pledge to repay a sum of money at maturity along with periodic insterst payments

Question 19

What is the purpose of a gov bond?

Answer 19

funding national debt and costs of government at all levels

Question 20

Treasury Bills and treasury note have a minumum of _____

Answer 20

$100

Question 21

the Ts in order from shortest to longest maturation

Answer 21

T Bills, T notes, TIPS, T bonds

Question 22

Ts in order from lowest to highest interest rate

Answer 22

t bills, t notes, t bonds

Question 23

Municipal bond

Answer 23

issued by state or locan governmnet to fund building projects

Question 24

General Obligation Bonds

Answer 24

backed by full faith, credit, and taxing authority of the issuing state or government

Question 25

Revenue bonds

Answer 25

repaid from money generated by the project funded by the investment, such as a toll bridge

Question 26

Corporate bonds

Answer 26

written pledge to repay a specified amount of money with interest

Question 27

4 characterstics of corporate bonds

Answer 27

interest only, safer than stocks, fixed income, a form of debt financing

Question 28

Debenture

Answer 28

only insured by reputation of isuing company

Question 29

how is current yield determined?

Answer 29

annual interest/current price

Question 30

what is yield?

Answer 30

rate of return earned by investor that holds bond to maturity

Question 31

Bonds pay in _____; stocks pay in _____

Answer 31

interest, dividends