Personal Finance- Unit Two

Question 1

Safety vs. Risk in investing

Answer 1

safety=chance of losing your money in an investment is small
risk= you cannot be certain about the profit of your investment, could lose a lot of money

Question 2

Speculative Investment

Answer 2

considered a high-risk investment that might earn a large profit in a short time

Question 3

Dividends

Answer 3

distribution of money, stock or other property that a corporation pays to stockholders
bankruptcy= worthless investment
(profit - reinvestment / # of shares )

Question 4

Retained Earnings

Answer 4

profits that a company reinvests, usually for expansion or to conduct research and development

Question 5

Investment Liquidity

Answer 5

the ability to buy or sell an investment quickly w/ out substantially reducing its value

Question 6

Common Stock

Answer 6

a unit of ownership of a company, and it entitles the owner, or stockholder, to voting privileges

Question 7

Preferred Stock

Answer 7

gives the owner the advantage of receiving cash dividends before common stock holders (gonna cost more when purchasing)

Question 8

Three things to remember before investing in a stock:

Answer 8

1) a corporation does not have to repay you what you paid for the stock … must sell stock through stockbroker
2) the current value of your stock is partially determine by how much another investor is willing to pay for your share
3) the corporation does not have to pay dividends if the company has a bad year or decides to reinvest earnings, the board of directors can vote to eliminate dividend payments

Question 9

Corporate Bond

Answer 9

a corporation’s written pledge to repay a specific amount of money, along with interest

Question 10

Government Bond

Answer 10

Government’s written pledge to repay a specific amount of money with interest (no tax!)

Question 11

Maturity Date

Answer 11

Whether the corporation or government entity will be able to pay interest until maturity. Maturity dates range from 1 - 30 years
*The date on which an investment becomes due for payment

Question 12

Face Value of Bond

Answer 12

The amount the issuer of a bond will have to pay on the maturity date

Question 13

Mutual Fund

Answer 13

an investment in which investors pool their money to buy stocks, bonds + other securities selected by professional managers who work for an investment company

Question 14

Diversification

Answer 14

the process of spreading your assets among several different types of investments to reduce risk
“don’t put all eggs in 1 basket”

Question 15

Prospectus

Answer 15

document that discloses information about a company’s earnings, assets, and liabilities + the qualifications of it’s management team

Question 16

Tax-exempt

Answer 16

income not taxed

Question 17

Tax-deferred

Answer 17

income that is taxed at a later date ex. 401K

Question 18

Taxable

Answer 18

able to be taxed

Question 19

Tax income of stocks and bonds

Answer 19

income falls under the three categories, Taxable, tax deferred + tax exempt
-must report dividends on your tax returns

Question 20

Capital Gain

Answer 20

the profit from the sale of assets such as stocks, bonds, or real estate
-taxed according to how long you own an asset over a short/long term