chapter 8, why everybody needs to save

Question 1

the commitment of resources to a project or purpose that is expected to bring future profit to the investor

Answer 1

investment

Question 2

sector that does the majority of saving in market economies

Answer 2

private sectors

Question 3

one who borrows money

Answer 3

debtor

Question 4

one who lends money or capital

Answer 4

creditor

Question 5

an account that allows checks to be written up to the dollar amount that the account holder has deposited

Answer 5

checking account

Question 6

most popular form of transaction account

Answer 6

checking account

Question 7

an account holder’s written order that authorizes his bank to withdraw finds from his account

Answer 7

a check

Question 8

a bank account that allows the account holder to earn interest on his deposits

Answer 8

savings account

Question 9

an account that guarantees a certain interest rate that has a specified maturity date

Answer 9

certificate of deposit (CD)

Question 10

an account that allows limited transactions and pats an interest rate that changes with the demand for loans

Answer 10

money market account

Question 11

was created shortly after thousands of people lost their savings in bank crashes during the great depression

Answer 11

FDIC

Question 12

an arrangement provided by an individual’s employer for the intent of providing for the employee’s retirement from work

Answer 12

pension plan

Question 13

a contract between two parties in which one party protect the other against certain types of loss in exchange for payments called:

Answer 13

premiums

Question 14

two types of pension plans

Answer 14

defined pension plan, defined contribution plan

Question 15

the resources corporations gather by selling ownership in their businesses

Answer 15

stocks

Question 16

a legal entity which is distinct from the people who own it

Answer 16

corporation

Question 17

equal portions of a corporation’s stock

Answer 17

shares

Question 18

each owns a percentage of the business determined by the amount of stock he holds

Answer 18

stockholders

Question 19

if a corporation fails or declares bankruptcy, the individual stockholders do not personally have to pay the firm’s creditors

Answer 19

limited liability

Question 20

shares of a corporation’s profit

Answer 20

dividends

Question 21

a person can invest in a corporation by buying a:

Answer 21

common stock

Question 22

assets that flow easily since they can be converted into other investments or cash without much time or difficulty

Answer 22

liquid investments

Question 23

a document that guarantees the bondholder the amount of his original investment plus a specified rate of interest by a certain date

Answer 23

a bond

Question 24

investment companies that combine the resources of all their shareholders and invest the money in a wide variety of areas

Answer 24

mutual funds

Question 25

three key elements that determine how much an investment grows

Answer 25

time, rate of return, amount invested