Chapter 12 Vocab

Question 1

Bond

Answer 1

a written ledger that you’ll be repaid your specified amount of money plus interest

Question 2

Brokerage firm

Answer 2

a financial institution that facilitates the buying and selling of financial securities between an buyer and a seller

Question 3

Capital Gain

Answer 3

unearned income received from the sale of an asset above its purchase price

Question 4

Certificate of Deposit (CD)

Answer 4

a certificate issued by a bank to a person depositing money for a specified length of time

Question 5

Discount brokerage firm

Answer 5

a business that charges clients significantly lower fees than a traditional brokerage firms but without providing financial advice

Question 6

Dividend

Answer 6

the money you receive as a shareholder of the company

Question 7

Financial Advisor

Answer 7

a person who is employed to provide financial services or guidance to clients

Question 8

Full service brokerage firm

Answer 8

provides a large variety of services to its clients including research and advice retirement planning, tax tips, etc.

Question 9

Index

Answer 9

group of similar stocks and bonds

Question 10

Index fund

Answer 10

type of mutual fund designed to reduce fees by investing in the stocks and bonds that make up the index

Question 11

Inflation

Answer 11

rise in general level of prices

Question 12

Inflation risk

Answer 12

the danger that money won’t be worth as much in the future as it does now

Question 13

Investment

Answer 13

an asset purchased with the goal of providing additional income from the asset itself but with the risk of lose

Question 14

Investment philosophy

Answer 14

everyone has a tolerance level for the amount of risk they are willing to take on

Question 15

Investment risk

Answer 15

possibility that an investment will fail to pay the expected return

Question 16

Market price

Answer 16

current price a buyer is willing to pay

Question 17

Maturity date

Answer 17

when the principal amount of a note, draft, acceptance bond or another debt instrument becomes due and is repaid to the investor and interest payments stop

Question 18

Mutual fund

Answer 18

when a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds

Question 19

Portfolio diversification

Answer 19

reduces risk by spreading money among a wide array of investments

Question 20

Risk

Answer 20

a situation involving the possibility of danger or loss

Question 21

Speculative investments

Answer 21

have the potential for significant fluctuations in return over a short period of time

Question 22

Stock

Answer 22

share of ownership in a corporation

Question 23

Stockholder/Shareholder

Answer 23

ower of stock

Question 24

Stock exchange

Answer 24

a market in which securities are bought and sold