Savings and Investments

Question 1

a focus on preservation

Answer 1

saving

Question 2

an emphasis on accumulation

Answer 2

investing

Question 3

the interest payment is computed as a percentage of the original deposit amount

Answer 3

simple interest

Question 4

interest is paid on the original deposit amount as well as on accumulated interest from previous periods

Answer 4

compound interest

Question 5

the amount of money an investment earns

Answer 5

rate of return

Question 6

FDIC insures each bank account up to __ dollars

Answer 6

$250,000

Question 7

term that describes a return on each share of stock the investor holds

Answer 7

dividend

Question 8

written promise to repay loans is a simple definition describing what type of investment

Answer 8

bond

Question 9

the ease at which an investment can be converted to cash

Answer 9

liquidity

Question 10

the gradual rise in prices for goods and services

Answer 10

inflation

Question 11

profit from the sale of stocks is called __

Answer 11

capital gain

Question 12

the process of spreading your money over several different types of investments

Answer 12

diversificaiton

Question 13

a time deposit that requires you to keep your money in the bank for a specific period of time

Answer 13

CD (certificate of deposit)

Question 14

bonds issued by corporations

Answer 14

corporate bonds

Question 15

bonds issued by state or local government

Answer 15

municipal bonds

Question 16

shares in the ownership of a corporation

Answer 16

stocks

Question 17

mutual funds __(are/ are not) FDIC insured

Answer 17

are not

Question 18

CD’s __ (are/ are not) FDIC insured

Answer 18

are

Question 19

the rate of return - the inflation rate =

Answer 19

real rate of return

Question 20

pool of money used by an investment company to purchase shares of many corporations

Answer 20

mutual fund

Question 21

characteristics of a savings investment

Answer 21

low risk
low return
high liquidity
usually requires minimum deposit

Question 22

characteristics of a CD

Answer 22

low risk
low return
purchased for specific amount of money
low liquidity
fixed rate of interest for a certain amount of time
penalty for withdrawing money early

Question 23

characteristics of bonds

Answer 23

low-average risk
average return
low liquidity
written promise to repay loans
bondholder expects.. to be repaid in full, receive fixed
amount of interest

Question 24

characteristics of stocks

Answer 24

high risk
potential for high return
average liquidity
earn money from investment in 2 ways
                      1. dividends
                      2. capital gains

Question 25

characteristics of a mutual fund

Answer 25

lower risk
potential for high return
average liquidity

Question 26

what are 3 advantages to a mutual fund

Answer 26

1. decisions made by a mutual fund manager
2. limits risk in stock market
3. allows for individuals to diversify within the market

Question 27

to invest the same fixed dollar amount in an investment at regular intervals over a long period of time

Answer 27

dollar cost averaging

Question 28

what are the 2 ways to earn money from your stocks

Answer 28

1. dividends

2. capital gain

Question 29

what are the 3 most common types of employer-sponsored retirement savings plans

Answer 29

401K (companies)
403B (public schools)
457 (government)

Question 30

outlines how much of the company matching contributions and investment earnings you own at a certain time

Answer 30

vesting schedule

Question 31

If you leave your employer.. what are 4 options for what to do with your 401K

Answer 31

1. roll over your account into new employer’s plan
2. roll over your account balance into IRA
3. keep with with former employer
4. (worst) withdraw your account balance in a lump sum cash payout