Chapter 11

Question 1

type of brokers who buy and sell securities for clients for a reduced commission

Answer 1

discount brokers

Question 2

a document that gives the financial history of a corporation

Answer 2

annual report

Question 3

the spreading of risk among many types of investments

Answer 3

diversification

Question 4

pools money of many investors and buys a large selection of securities

Answer 4

mutual funds

Question 5

a contract issued by an insurance company that pays a series of regular payments, usually after retirement

Answer 5

annuity

Question 6

a rise in the general level of prices

Answer 6

inflation

Question 7

a person who buys and sells securities for clients

Answer 7

broker

Question 8

type of risk when Gov’t actions affect business profits

Answer 8

political risk

Question 9

the right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period

Answer 9

option

Question 10

professional investment planners

Answer 10

financial advisors

Question 11

represents ownership in a corporation

Answer 11

stocks

Question 12

a formula used to estimate time or rate to double your money

Answer 12

rule of 72

Question 13

the use of savings to earn a financial return

Answer 13

investing

Question 14

contracts to buy and sell commodities for a specified price on a specified future date

Answer 14

futures

Question 15

debt obligations of corporations or a government

Answer 15

bonds

Question 16

the chance that an investment’s value will decrease is called ______ ____

Answer 16

investing risk

Question 17

sections of newspapers containing financial date

Answer 17

financial pages

Question 18

provide financial data for interpretation (for example, Moody’s)

Answer 18

investor services

Question 19

type of bond purchased for less than its maturity value

Answer 19

discount bond

Question 20

low-priced stocks of small companies that have no track record

Answer 20

penny stocks

Question 21

For how long a period of time are Treasury Bills issued?

Answer 21

1 year or less

Question 22

final level of realm of investing is called ______

Answer 22

speculation

Question 23

a savings plan whereby an individual invests on a regular and planned bases

Answer 23

systematic investment

Question 24

What are the reasons for investing ? (3)

Answer 24

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)

Question 25

What are the stages of investing? (5 stages)

Answer 25

1) put-and-take account 2) beginning investing 3) systematic investing 4) strategic investing 5) speculative investing

Question 26

stage of investing: account for emergency funds

Answer 26

put-and-take account

Question 27

stage of investing: extra money you have, low risk/low cost

Answer 27

beginning investing

Question 28

stage of investing: I am stable, have steady income, high risk tho

Answer 28

systematic investing

Question 29

stage of investing: 5-10 yrs. before retirement (start looking)

Answer 29

strategic investing

Question 30

stage of investing: risk a large sum to make a quick return in a short amount of time (if you win the lottery)

Answer 30

speculative investing

Question 31

What are the types of risks? (5 types)

Answer 31

1) interest-rate risk 2) political risk 3) market risk 4) non-market risk 5) company or industry risk

Question 32

low risk = low return | high risk = _________

Answer 32

high return

Question 33

What is the criteria for choosing an investment?

Answer 33

- safety - high liquidity - high dividends or interest - growth in value that EXCEEDS the inflation rate - reasonable purchase price - tax benefits

Question 34

What are some wise investment practices? (7 of these_

Answer 34

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

Question 35

great estate = _______ investment

Answer 35

great

Question 36

type of risk: risk that the interest won't keep up w/ inflation

Answer 36

interest-rate risk

Question 37

type of risk: anything the gov. institutes (changed laws, ex. packaging laws) affects your business

Answer 37

political risk

Question 38

type of risk: depressions, recessions

Answer 38

market risk

Question 39

type of risk: no control over (natural disasters, terrorism)

Answer 39

non-market risk

Question 40

type of risk: affects one company/business

Answer 40

company or industry risk

Question 41

SHORT ANSWER: What are the sources of Financial Information? (6 sources)

Answer 41

1) newspapers 2) investor services and newsletters 3) financial magazines 4) brokers/financial advisors 5) annual reports and financial statements 6) online investor education

Question 42

low-to-medium return =

Answer 42

low risk

Question 43

medium return =

Answer 43

medium risk

Question 44

high return =

Answer 44

high risk

Question 45

examples of low risk (w/ low-to-medium return)

Answer 45

1) corporate and municipal bonds 2) U.S. government savings bonds 3) treasury securities

Question 46

examples of medium risk & medium return

Answer 46

1) mutual funds 2) annuities 3) self-managed retirement accounts 4) real estate

Question 47

examples of high risk & high return

Answer 47

1) penny stocks 2) collectibles 3) futures 4) options 5) stocks/trading instruments (commodities)