Chapter 11 Flashcards
type of brokers who buy and sell securities for clients for a reduced commission
discount brokers
a document that gives the financial history of a corporation
annual report
the spreading of risk among many types of investments
diversification
pools money of many investors and buys a large selection of securities
mutual funds
a contract issued by an insurance company that pays a series of regular payments, usually after retirement
annuity
a rise in the general level of prices
inflation
a person who buys and sells securities for clients
broker
type of risk when Gov’t actions affect business profits
political risk
the right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period
option
professional investment planners
financial advisors
represents ownership in a corporation
stocks
a formula used to estimate time or rate to double your money
rule of 72
the use of savings to earn a financial return
investing
contracts to buy and sell commodities for a specified price on a specified future date
futures
debt obligations of corporations or a government
bonds
the chance that an investment’s value will decrease is called ______ ____
investing risk
sections of newspapers containing financial date
financial pages
provide financial data for interpretation (for example, Moody’s)
investor services
type of bond purchased for less than its maturity value
discount bond
low-priced stocks of small companies that have no track record
penny stocks
For how long a period of time are Treasury Bills issued?
1 year or less
final level of realm of investing is called ______
speculation
a savings plan whereby an individual invests on a regular and planned bases
systematic investment
What are the reasons for investing ? (3)
1) investing helps us beat inflation (gen. rise in prices over time)
2) investing increases wealth (we want money)
3) investing is fun & challenging (we like gambling)
What are the stages of investing? (5 stages)
1) put-and-take account
2) beginning investing
3) systematic investing
4) strategic investing
5) speculative investing
stage of investing: account for emergency funds
put-and-take account
stage of investing: extra money you have, low risk/low cost
beginning investing
stage of investing: I am stable, have steady income, high risk tho
systematic investing
stage of investing: 5-10 yrs. before retirement (start looking)
strategic investing
stage of investing: risk a large sum to make a quick return in a short amount of time (if you win the lottery)
speculative investing
What are the types of risks? (5 types)
1) interest-rate risk
2) political risk
3) market risk
4) non-market risk
5) company or industry risk
low risk = low return
high risk = _________
high return
What is the criteria for choosing an investment?
- safety
- high liquidity
- high dividends or interest
- growth in value that EXCEEDS the inflation rate
- reasonable purchase price
- tax benefits
What are some wise investment practices? (7 of these_
1) define your financial goals
2) go slowly
3) follow through
4) keep good records
5) seek good investment advice
6) keep investment knowledge CURRENT
7) know your limits
great estate = _______ investment
great
type of risk: risk that the interest won’t keep up w/ inflation
interest-rate risk
type of risk: anything the gov. institutes (changed laws, ex. packaging laws) affects your business
political risk
type of risk: depressions, recessions
market risk
type of risk: no control over (natural disasters, terrorism)
non-market risk
type of risk: affects one company/business
company or industry risk
SHORT ANSWER: What are the sources of Financial Information? (6 sources)
1) newspapers
2) investor services and newsletters
3) financial magazines
4) brokers/financial advisors
5) annual reports and financial statements
6) online investor education
low-to-medium return =
low risk
medium return =
medium risk
high return =
high risk
examples of low risk (w/ low-to-medium return)
1) corporate and municipal bonds
2) U.S. government savings bonds
3) treasury securities
examples of medium risk & medium return
1) mutual funds
2) annuities
3) self-managed retirement accounts
4) real estate
examples of high risk & high return
1) penny stocks
2) collectibles
3) futures
4) options
5) stocks/trading instruments (commodities)
