Unit 1: Working/ Investing

Question 1

W-4

Answer 1

tells the employer the correct amount of tax to withhold from an employee’s paycheck based on the employee’s marital status, number of exemptions and dependents and other factors.

Question 2

W-2

Answer 2

reports an employee’s annual wages and the amount of taxes withheld from his or her paycheck. -Get this from employer at end of year and need it to file your taxes

Question 3

What gets taken out of your paychecks and why?

Answer 3

• FICA- social security/ Medicare
• Federal taxes
• State Taxes
• Local Taxes

*pays for public goods- things everyone benefits from but no one would volunteer their money to pay for.

Question 4

Net Income

Answer 4

money you take home from pay check AFTER taxes are taken out

Question 5

Gross Income

Answer 5

An individual’s total personal income, before accounting for taxes or deductions.

Question 6

Wealth

Answer 6

What you own minus what you owe. You can make a lot and still not be wealthy

Question 7

What influences your income

Answer 7

-Economic ( supply/ demand, inflation), discrimination, work skills, education

Question 8

Why people use banks

Answer 8

• make money (interest)
• safety and convenience
• for loans/ build credit

Question 9

Volatility

Answer 9

Indicates how much and how quickly the value of an investment, market, or market sector changes.

Question 10

Stock

Answer 10

A type of security that signifies ownership in a corporation and represents a claim to a part of the company’s profits or losses. Companies usually issue stock to raise money for a variety of reasons, including expanding or modernizing their operations.

Question 11

IPO

Answer 11

Initial Public Offering; the initial sale of stock to the public by investment bankers.

Question 12

Risk Tolerance:

Answer 12

An investor’s ability to accept loss of some or all of the money he or she has invested, based on a number of factors including age, financial stability, amount of time before the invested funds are needed for other purposes, etc.

Question 13

Face Value

Answer 13

The principal amount of a bond or note due at maturity.

Question 14

Principal

Answer 14

the original dollar amount of investment you start with

Question 15

Beta Number:

Answer 15

-How to use beta to look for risk tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market.

Question 16

P/E ratio (what is does, what else you need)

Answer 16

This is calculated by dividing the current stock price by earnings per share from the last four quarters. -need to use this to compare other companies in the same INDUSTRY as the stock you are looking at. -if the p/e is above the industries p/e, it is overvalued stock -if p/e is under, it is undervalued

Question 17

Volume

Answer 17

-This figure shows the total number of shares traded for the day, listed in hundreds. - To get the actual number traded, add “00” to the end of the number listed.

Question 18

Dividends( Div)

Answer 18

-part of company’s profits income the company is paying out to the investors

Question 19

Market Cap

Answer 19

it is the market value of a company’s outstanding shares. -High cap stocks(5 billion) not risky -Low cap stocks are riskier

Question 20

Private vs public company:

Answer 20

-private: shares are not sold to the public -public: anyone can buy share to own part ownership of the company.

Question 21

Bonds

Answer 21

-A bond is like an IOU for a loan you’ve made to an institution -When you purchase a bond you are lending money to the issuer, who can be a corporation, the government or a government agency.

Question 22

How do you make money on bonds

Answer 22

In return for the loan the issuer promises to pay you ( the bond investor) a specific rate of interest known as the “coupon rate”.

Question 23

Mutual Funds

Answer 23

collection of stocks, bonds and other securities owned by a group of investors and managed by a professional investment firm.

Question 24

Diversification

Answer 24

-An investment strategy in which you spread your investment dollars among industry sectors. -Want different types of investment options as well (stocks, mutual funds, bonds etc.) -That way if one type goes down, you won’t lose all your money

Question 25

Pay yourself first means

Answer 25

Saving Strategy: put away savings before spending on consumer goods

Question 26

Why you should start saving early

Answer 26

-Savings is one way to build wealth Unexpected expenses occur due to loss of job, accidents, health issues or automobile and home repairs. -Setting money aside for such emergencies can ease the stress of uncertainty until additional income is available. -Earlier you start, the more that money will grow with interest = more money you get

Question 27

Compounding interest

Answer 27

is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. “interest on interest”

Question 28

Liquidity

Answer 28

how fast assets can turn into cash

Question 29

Factors that reduce money earned in savings accounts:

Answer 29

-Fees, and penalties: if you go under a certain amount, or take out your money too much or early you can get charged -Taxes: banks will tax your money, tax-deferred means it does not get taxed until you are ready to take the money out, allowing the money to grow larger. -Inflation risk: if inflation is higher than your interest rate, your savings is losing money.

Question 30

Savings Accounts

Answer 30

-A deposit account that earns interest and is issued by a bank or credit union Minimal risk- insured by FDIC/ NCUSIF -Not risky -No restrictions on withdrawals -Low or no minimum balance required -lowest interest rates -Some banks charge fees for opening and maintaining accounts

Question 31

Money Market accounts

Answer 31

A type of checking/ saving account issued by bank or credit union to hold your money -Minimal risk- insured by FDIC/ NCUSIF -Higher interest rates than a savings account/ -Can withdraw money USUALLY when you want -HIgher minimum balance required -Some withdrawal restrictions( limit on number withdrawals a month) -Subject to fees if balance is below certain amount

Question 32

Retirement Accounts

Answer 32

An account such as an IRA and 401K that helps you set aside money for retirement -Investment choices range from non risky government bonds to high risk stocks. -Tax-deferred growth(not taxed until you want the money) -Some employers will match contributions -Helps create long term savings -Steep penalties for withdrawing money before retirement -Contribution limits( cannot put all your money in here)

Question 33

Certificate of deposit

Answer 33

Savings certificate issued by a bank or credit union. You give the bank money, and they hold it for a certain amount of time( called term) Minimal risk- insured by FDIC/ NCUSIF -Higher interest rates than traditional saving accounts -not risky -The longer the term, the higher interest you earn -Must be left in the bank for the fixed amount of time -Steep penalties for withdrawing money early -Minimum balances required

Question 34

Ticker

Answer 34

Symbols used by the stock market for stocks exchanges to identify listed companies.

Question 35

Stock Index

Answer 35

like a GPA, it tells the investor the overall performance of a portfolio designed to represent a selected market.

Question 36

DOW (Dow Jones industrial average)

Answer 36

-Only tracks 30 blue chip stocks

Question 37

S%P 500

Answer 37

-Tracks 500 large companies-mostly industrial/ financial sectors though

Question 38

NASDAQ

Answer 38

-Every company listed on the NASDAQ stock exchange is tracked on this index

Question 39

Russell 2000

Answer 39

-tracks 2000 small cap business

Question 40

Bull vs Bear Market

Answer 40

-Bull Market is when the stock market is doing really well and the economy is going - bear market is when the stock market has gone down a lot and the economy is doing bad.

Question 41

Allowances

Answer 41

people you claim on your w-4 who depend on you, meaning less taxes will get taken out

Question 42

Scarcity

Answer 42

Unlimited wants but limited resources

Question 43

Opportunity Cost

Answer 43

The best next option. What you are giving up when you make a choice.

Question 44

I-9

Answer 44

A form you fill out that shows your citizenship to be able to work in the US