final - chapter 19

Question 1

What are the 3 kinds of savings accounts?

Answer 1

1. savings account
2. certificate of deposit (CD’s)
3. money market account

Question 2

an account with a low balance, may deposit and withdraw money as needed

Answer 2

savings account

Question 3

earn higher interest rate than a regular savings account, usually requires a minimum deposit of $100 to $1000 or more, money must be left on deposit for a specified period

Answer 3

certificate of deposit (CD)

Question 4

pays a variable interest rate based on various government and corporate securities, do not require long term deposits

Answer 4

money market account

Question 5

What are the 3 kinds of investment / securities?

Answer 5

1. stock investments
2. bond investments
3. mutual funds

Question 6

very common way of investing, buy a share in a company, become part owner

Answer 6

stock investments

Question 7

lending money for use by businesses and governments

Answer 7

bond investments

Question 8

people buy shares in a fund managed by an investment company, money from many investors is used to invest in a variety of securities, allows investors to spread out their risk among many investments

Answer 8

mutual funds

Question 9

What is the difference betweeen compound and simple interest?

Answer 9

simple interest is just earned on the amount saved, compound interest is earned on the amount saved plus on interest previously earned

Question 10

What is the difference between variable and fixed interest?

Answer 10

fixed interest stays the same for the entire time, variable interest changes and can go up or down

Question 11

if a stock increases in value and is then sold for more than its original cost

Answer 11

capital gain

Question 12

a stock is sold for less than the original cost

Answer 12

capital loss

Question 13

What are 3 alternative investments and give examples?

Answer 13

1. real estate - ex. housing, farmland, apartment buildings, shopping malls
2. commodities - ex. grain, livestock, currency
3. collectibles - old coins, works of art, antiques, stamps

Question 14

the percentage of money earned on your savings or investment over a year

Answer 14

yield

aka rate of return or annual yield

Question 15

the ease with which an investment can be changed into cash without losing its value

Answer 15

liquidity

Question 16

What affects stock prices?

Answer 16

• how well a business is doing
• how bad a business is doing
• current economic conditions
• national and global politics
• inflation
• interest rates
• consumer spending
• employment

Question 17

payments paid to stockholders if a business is profitable

Answer 17

dividends

Question 18

How is preferred and common stock different?

Answer 18

• preferred stock is less risky, there are no voting rights, has a set rate
• common stock has no stated dividend rate, have voting rights, dividends are paid after preferred, have opportunity to make more money

Question 19

when a company sells stock itself for the first time, a company’s ‘coming out party’, when a company goes public

Answer 19

Initial Public Offering (IPO)

Question 20

the OTC market in the US, includes many large companies

Answer 20

NASDAQ

means National Association of Security Dealers Automated Quotations

Question 21

the price at which a share of stock can be bought and sold in stock market

Answer 21

market value

Question 22

What is the difference between a bull and bear market?

Answer 22

• bull market - is a good thing, there is a prolonged period of time when prices are rising in financial market faster than their historical average, associated with increasing investor confidence
• bear market - is a long period of time when prices are falling in financial market, accompanied by widespread pessinism (people don’t feel good about market)

Question 23

indicators of stock values that are commonly reported on websites, tv, radio and newspapers

Answer 23

stock index

Question 24

stock index that includes 30 of the largest US companies

Answer 24

Dow Jones Industrial Average

Question 25

stock index which is based on stock values of 500 major companies

Answer 25

S&P 500

Question 26

owns a smaller company or companies

Answer 26

parent company

Question 27

oversees the financial markets

Answer 27

US Securities and Exchange Commission (SEC)

Question 28

What are the 6 main types of mutual funds?

Answer 28

1. Aggressive growth stock funds - seek quick growth, but also have higher risk
2. Income funds - specialize in stocks that pay regular dividends
3. International funds - invest in stock of companies from around the world
4. Sector funds - buy stocks of companies in the same industry such as health care, energy or telecommunications
5. Bond funds - specialize in corporate bonds
6. Balanced funds - invest in both stock and bonds

Question 29

Why do governments and corporation sell bonds?

Answer 29

to raise money for current operations or future expansions

Question 30

What are 3 types of government bonds?

Answer 30

• municipal bonds
• US savings bonds
• Treasure bills

Question 31

someone trained to estimate the value of property and who can give an official report on the value

Answer 31

appraiser

Question 32

What are some benefits of home ownership?

Answer 32

• tax benefits
• increased equity - can sell house for more than you owe and make money
• pride of ownership - feel proud that you own your own home

Question 33

the difference between the price at which you could currently sell your house and the amount owed on the mortgage

Answer 33

equity

Question 34

What are some of the costs of home ownership?

Answer 34

• property taxes
• interest payments
• property insurance
• maintenance - keeping property in good condition, is about 2% of property’s value

Question 35

What are some factors that affect the value of a home?

Answer 35

• location
• quality of schools
• maintenance of the property and home
• home features - updated kitchen, remodeled bathrooms, finished basement, etc