Unit 4

Question 1

Investing

Answer 1

a strategy to earn more on your money than the rate of inflation.

Question 2

Wealth

Answer 2

the accumulation of assets over time.

Question 3

Net Worth

Answer 3

the value of all the assets owned by an individual or institution MINUS the value of all of its outstanding liabilities.

Question 4

Bond

Answer 4

a loan to a company or government that pays investors a fixed rate of return over a specific timeframe.

Question 5

Stock

Answer 5

ownership interest in a publicly traded company.

Question 6

Commodity

Answer 6

an item that has the same value across the market with little or no difference in quality among producers.

Question 7

Futures Contracts

Answer 7

an agreement to buy or sell commodities for a specific price on a future date.

Question 8

Proprietorship

Answer 8

a business owned by one person.

Question 9

Partnership

Answer 9

a business owned by two or more people.

Question 10

Franchise

Answer 10

a contract that gives you the right to sell a company’s products and services.

Question 11

Stockbroker

Answer 11

a licensed professional who buys and sells stock on an exchange on behalf of the clients.

Question 12

Stock Market

Answer 12

a place where stockbrokers buy and sell stock on a public exchange

Question 13

Full-Service Broker

Answer 13

offers customized support and interaction in facilitating trades and managing portfolios for clients

Question 14

Discount Broker

Answer 14

carries out buy and sell orders at a reduced commission rate however they provide no investment advice

Question 15

Day Trader

Answer 15

a person who attempts to make money by buying and selling stocks over short periods of time

Question 16

investment tracking

Answer 16

involves making investment choices by following stock prices over time

Question 17

dividend

Answer 17

money paid (typically quarterly) by a company to its shareholders out of its profits (or reserves)

Question 18

Bull market

Answer 18

when stock prices are steadily increasing

Question 19

bear market

Answer 19

when prices are steadily decreasing

Question 20

initial public offering

Answer 20

when a private company offers its stock to the public for the first time

Question 21

buying on the margin

Answer 21

borrowing money from your broker to buy stock

Question 22

selling short

Answer 22

involves selling stock that has been borrowed from a broker and replacing it later

Question 23

stock split

Answer 23

an issue of new shares in a company to existing shareholders in proportion to their current holdings

Question 24

Investment Risk

Answer 24

the potential for change in the value of an investment.

Question 25

Inflation Risk

Answer 25

chance that the rate of inflation will be higher than the investment rate of return.

Question 26

Industry Risk

Answer 26

chance that factors affecting an industry as a whole will negatively affect the value of an investment.

Question 27

Political Risk

Answer 27

chance that a political event will affect the value of an investment.

Question 28

Stock Risk

Answer 28

chance that activites or events affecting a company will change the value of an investment in that company.

Question 29

SEC

Answer 29

protects investors from dangerous or illegal financial practices or fraud.

Question 30

Insider Trading

Answer 30

buying or selling stock on confidential information.

Question 31

Ponzi Scheme

Answer 31

a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

Question 32

Diversification

Answer 32

holding a variety of investments for the purpose of reducing overall risk.

Question 33

Dollar-Cost Averaging

Answer 33

the systematic purchase of an equal dollar amount of the same stock at regular intervals.

Question 34

Mutual Fund

Answer 34

a professionally managed group of investments.

Question 35

Tax Deferral

Answer 35

a postponement of taxes to be paid.

Question 36

Tax Exemption

Answer 36

means savings and investments are not taxed.

Question 37

Return on Investment

Answer 37

the amount that savings or investments grow expressed as a percentage.