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investing for your future > exam 2 > Flashcards

exam 2 Flashcards

1
Q

compound interest

A

class def: working out interest for the first period, then adding to the next period and then the following and so on.

chat GPT: compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

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2
Q

certificate of deposit (CD)

A

it is a savings certificate and a time deposit, offered by banks and credit unions where you agree to lock up a certain amount of money for a predetermined period of time. it has a fixed maturity date and specified fixed interest rate.

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3
Q

FDIC

A

Federal Deposit Insurance Corporation, it is a government agency created in response to the Great Depression, it’s purpose is to encourage stability in financial systems

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4
Q

rule of 72

A

sees how long it will take for your money to double with a given interest rate, by dividing by 72 by the interest rate, it will give you the years it will take for money to double; also by doing 72 divided by the amount of years you have to save to give you the interest rate.

72/by rate # of yers to take you to double the money
72/by annual interest rate

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5
Q

interest

A

'’loan at the end’’ = ‘‘loan at start’’ x interest rate

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6
Q

formula for future value:
PV x (1+r)^n = FV

A

PV x (1+r)^n = FV

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7
Q

PV

A

present value

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8
Q

R

A

rate

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9
Q

N

A

number of periods

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10
Q

FV

A

future values

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11
Q

continous compounding

A

class def: can’t compound more than this, won’t get the same return on a stock, it will grow and change in value as the rate can change day to day or in a moment.

chat GPT: here interest on an investment or loan is calculated and added to the principal infinitely often, at every possible instant in time. Essentially, it means earning interest on interest continuously, without any breaks or specific intervals.

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12
Q

APR

A

class def: Annual Percentage Rate = rate that shows simple interest, higher looking rate, is also referred to as stated rate or nominal rate

chat GPT: It is a measure used to represent the actual yearly cost of funds over the term of a loan

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13
Q

EAR

A

Effective Annual Rate, does not take into account of compounding.

chat GPT: actual interest rate an investor earns or a borrower pays on a loan or investment over a year.

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14
Q

APY

A

A=annual
P=percentage
Y= yield

APY = APR

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15
Q

What is the difference between EAR and APR?

A

APY OR APR takes into account of compounding, lower looking rate and EAR in CD they pay you

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16
Q

true or false: can only go to APR To EAR

A

true does not go backwards from EAR to APR for calculator

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17
Q

what is the purpose of investing?

A

generating a return

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18
Q

equity securities

A

stock

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19
Q

true or false: high returns are the reason equity investments are attractive

A

true

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20
Q

2 Primary Sources of Total Returns

A

Dividends & Capital Appreciation

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21
Q

Dividend Yield

A

class def: return attributable to dividend payments. OR a financial ratio in relation to amount you get back in dividends compared to how much you spent on the stock.

If a company’s stock is priced at $100 and it pays a $5 dividend annually, the dividend yield would be 5%.

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22
Q

total return

A

class def: adding up everything you earn from an investment, includes dividend yield and price appreciation

chat GPT def:t tells you the total percentage increase or decrease in your investment’s value, combining both the money you make (or lose) from the investment’s price changes and the money you receive from any income it produces.

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23
Q

bonds

A

a debt or loan obligations of a company or a government, in exchange for periodic interest payment and the return of the bond’s face value when it matures

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24
Q

term or maturity:

A

the period of time through which the issuer has control over the bond proceeds and the period of time it must continue to pay coupon or interest payments.

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25
Q

true or false: does terms impacts the yield that is received by the investor ?

A

true

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26
Q

true or false are mutual bonds an investment too?

A

true

27
Q

true or false: are some bonds callable?

A

true, the issue may call the bond from the holder prior to the maturity date.

28
Q

true or false: is it beneficial to the issuer if the interest rates have declined?

A

true

29
Q

fixed income securities…

A

Include a wide variety of instruments that range in terms of risk, maturity and structure.

30
Q

how do investors build portfolios?

A

return objectives, time horizon, liquidity, tax situation, unique circumstances

31
Q

types of fixed income securities

A

33% treasury
22% mortgage related
21% corporate debt
9%- Municipal
7% - money markets
5% federal agency securities

32
Q

what are blue chip stocks?

A

class def: blue chip stocks are stocks that are a bit bigger like tesla or apple

chat GPT: blue chip stocks are shares of large, well-established, and financially sound companies that have operated for many years.

33
Q

what is a dividend?

A

class def: is like an interest for a stock

chat gpt def: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.

34
Q

what is common stock?

A

class def: usually entitles the owner to vote at shareholder meetings and to receive

chat gpt def: Common stock represents ownership shares in a corporation. If you own common stock in a company, you have a claim on a portion of its assets and earnings. Shareholders of common stock typically have voting rights, which allow them to vote on company matters, such as choosing the board of directors. Common stockholders are at the bottom of the priority ladder for ownership structure; in the event of liquidation, they get paid after debt holders, preferred stockholders, and other obligations are satisfied.

35
Q

bonds

A

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.

36
Q

true or false: does corporate bonds have higher insurance rates?

A

true, because they can go bankrupt

37
Q

true or false: bond is issued at par

A

true, it is 1,000 increments

38
Q

matured

A

when bond ends

39
Q

financial portfoilip

A

class def: a collection of financial investments like stocks, bonds, commodities (gold or silver), cash, and cash equivalents like closed ends funds and exchange traded funds (ETFs).

chat gpt def: A financial portfolio is essentially a collection of different types of investments that an individual, company, or institution owns. This collection can include stocks, bonds, mutual funds, cash, real estate, and other investments. The main goal of having a portfolio is to diversify one’s investments, which means spreading out the risk across different types of assets.

40
Q

true or false: cash is an investment?

A

true, it is apart of your portfolio, and can be beneficial for selling or purchasing another bond

41
Q

what are 2 ways to minimize losses?

A

1). Avoid the risk
2). Minimize the risk

42
Q

law or large numbers

A

states that as a sample size grows, its mean gets closer to the average of the whole population. OR the more you repeat an experiment, the closer the average result of those experiments will get to what you expect to happen based on probability.

need a bigger sample size to get a better probability of what can happen, looking at sample populations, trying to figure out the probability.

*need a larger sample, to understand what is going on, or else it can be skewed

43
Q

risk pool

A

is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes. OR many people throw a little bit of money to protect themselves against a big loss.

*need a pool for insurance

44
Q

car insurance

A

no national regulation for car insurance, regulated by the state level
*paying a premium for a car in case of an accident, or if anything happens to your car

45
Q

comprehensive coverage:

A

pays for damage to your car that isn’t due to car accidents

46
Q

collsion coverage

A

if your vehicle is damaged in a collision with another car or object

47
Q

liability coverage

A

pays for damage to others

48
Q

bodily injury liability

A

will pay for others medical bills and lost wages when an accident is your fault

49
Q

property damage liability

A

protects the policyholder from financial losses if they damage someone else’s property.

50
Q

deductible

A

paying off an amount, before insurance kicks in

51
Q

term life insurance

A

policy that provides coverage for a certain period of time, or a specified ‘’term’’ of years. Most popular is 20 years, after 20 years most people will drop their insurance.

52
Q

permanent life insurance

A

more expensive or referred to as whole life insurance, paying premiums on this policy, it never goes away, can be paid out. Designed for the span of all of life.

53
Q

insurable interest

A

economic stake in something that if damaged, destroyed, or lost would result in financial hardship.

54
Q

stock

A

equity or share, investing belief in a company

Bond = borrowing from investors, to invest something.

55
Q

529 Plan

A

an investment account that offers tax-free withdrawals and other benefits when used to pay for qualified education expenses it is a tax deductible. There’s a federal advantage, no tax goes for room, board, tuition etc. Vanguard is the 529 plan for the State of Pennsylvania.You own it, and all the benefits, would go to you. Has to be for qualified expenses.

56
Q

what are the 2 types of 529 plans?

A

1). Education Savings Plans:

2). Prepaid Tuition Plans: not investing in the underlying investment, paying a discounted rate

57
Q

car investment

A

value goes down, because of mileage and continuously using it

58
Q

depreciation

A

go down in value

59
Q

down payment:

A

your money putting into car, have equity in the car
Amount Financed: will be less

60
Q

loan in upside down

A

owing more money than it’s actually worth

61
Q

true or falseL better to have 4 year auto loan

A

true, because of depreciation, no longer than 4 because of interest on auto loan

62
Q

leasing

A

purchasing the right to use a car for 3-4 years, then give it a back, renting it at it’s best

63
Q

true or false: Leasing is less expensive, however you will always have to lease a car

A

true

64
Q
A

investing for your future (6 decks)

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