Chapter 8 Flashcards
the commitment of resources to a project or purpose that is expected to bring future profit to the investor
investment
what takes a good percentage of national resources in advanced economies
research and development
a major cause of personal poverty is
lack of knowledge of how to save a portion of one’s income
one who borrows money or capital
debtor
one who lends money or capital
creditor
if one invests his money or goods in someone else’s enterprise, one will usually be paid a reward that is called
interest or dividend
two things a wise investor will seek to find:
- best use for his money
2.invest savings in way that will bring most good
the most common type of bank accounts
checking account
a checking account is a popular form of
transaction account
an account that allows checks to be written up to the dollar amount that the account holder has deposited
checking account
an account holder’s written order that authorizes his bank to withdraw funds from his account
check
transaction accounts are not regarded as a good form of savings because
little or no interest is paid on transaction accounts
a more efficient form of savings account which is a bank account that allows the account holder to earn interest on his deposits
savings account
two types of saving accounts that pay higher rates of interest
CDs (certificate of deposits)
money market accounts
an account that guarantees a certain interest rate and has a specified maturity date
CD or certificate of deposit
an account that allows limited transactions and pays an interest rate that changes with the demand for loans
money market account
to open a money market account, the account holder is often required to make
significant initial deposit
insures the money in each type of account up to at least $250,000
this corporation was created by Congress shortly after people lost savings in bank crashes during the Great Depression
Federal Deposit Insurance Corporation (FDIC)
a more specialized form of an investment which is a contract between two parties in which one party protects the other against certain types of loss in exchange for payments
insurance
payments put towards insurance
premiums
form of investment saving which is an arrangement provided by an individual’s employer for the intent of providing for the employee’s retirement from work
pension plan
two types of pension plans
defined benefit plan
defined contribution plan
pension plan in which an employer promises to pay an employee a certain amount per month after retirement based upon employee’s salary and length of service
defined benefit plan
pension plan in which an employer does not promise an employee any certain amount upon retirement, and the employer and employee are required to contribute regularly to a special tax-sheltered retirement account set up for employee
defined contribution plan
the resources corporations gather by selling ownership in their businesses
stocks
a legal entity which is distinct from the people who own it
corporation
equal portions of a corporations stock that each owner of a corporation holds
shares
no individual _______ owns the whole business
stockholder
provides protection to stockholders
limited liability
a limited liability says that if a corporation fails or declares bankruptcy, the individual stockholders
do not personally have to pay the firm’s creditors
shares of a corporation’s profit
dividends
two types of dividends
cash dividend (payment in the form of cash)
stock dividend (payment in the form of additional stock)
a person can invest in a corporation by buying
common stock (holders can vote concerning matters;
reward fluctuates with income)
preferred stock (receives fixed amount if company makes
enough profit in a year)
a document that guarantees the bondholder the amount of his original investment plus a specific rate of interest by a certain date
bond
investment companies that combine the resources of all the shareholders and invest the money in a wide variety of areas
mutual funds
assets that flow easily since they can be converted into other investments or cash without much time or difficulty
liquid investments
three key elements that determine how much your investment will grow
- time
- rate of return
- amount invested
the biggest form of saving for many Americans
federal Social Security system
form of social insurance that was enacted in 1935 in which citizens make payments to the government to be insured to some extent against poverty in old age, the mounting medical expenses of later years, the cost of crippling personal injuries, the loss of a parent in childhood etc
Social Security Act
many Americans pay _________ in Social Security taxes than they pay in federal and state income taxes
more
the federal government, in cooperation with the _______________________, uses the immense sums annually paid into the system for the government’s current expenditures, including welfare system and its numerous programs
Social Security Administration
some economists and others say that Social Security should not be described as a form of
saving
year of the Social Security Act
1935
