Economics chapter 11

Option

The right to buy or sell a stock at a future date at a a preset price

Investment

The use of income today that allows for future benefit

Why do you think that most people choose to buy common stock rather than preferred stocks?

They make more money in common stock

Why does the US government issue securities?

To pay for public works

Capital gain

Profit made from the selling of securities

Which of the following is a short-term financial goal?

Saving for prom

How might the strategy of a 21 year old man saving for a wedding in one year differ from the strategy of a 30 year old woman saving to open her own business at age 40?

21 year old has a shorter time span in the money market and does things less risky. 40 year old can go into capital market and take risks cause she can make it up eventually

Financial asset

A claim on the property of the borrower

Future

A contract to buy or sell stock at a later time on a specific date at a preset price

What type of relationship do risk and return have?

A direct relationship

What is a money market mutual fund?

A financial assets that allows investors to own a variety of short-term financial asset

What is an investment objective?

A financial goals used to determine whether investments are appropriate

Primary market

A market for buying and selling financial assists that the original buyer must redeem

Capital market

A market for buying long-term investments

Money market

A market for buying short-term investments

Secondary market

A market where financial assets are resold

Stock Exchange

A market where securities are bought and sold

Stockbroker

A person who buys and sells securities for customers

Preferred stock

A share of ownership that gives shareholders a share of profits but no voting rights

Common stock

A share of ownership that gives shareholders voting rights and a share of profits

Financial market

A situation in which buyers and sellers exchange financial assists

Bear market

A situation in which stock market prices decline steadily over a relatively long period of time

Bull market

A situation in which stock market prices rise steadily over a relatively long period of time

What are the advantages and disadvantages of investing in a money market mutual fund?

Advantages: more liquid, diversifying Disadvantages: not a lot of time to grow

What is the name of the amount that the issuer of a bond promises to pay the buyer at maturity?

Par value

Which of the following statements is true?

Corporate stocks are risky because their returns depend on company profits

Financial intermediary

An institution that collects funds from savers and invests those funds in a financial assets

Stock index

An instrument that measures and reports the change in prices of a set of stocks

Mutual fund

An investment company that gathers money from individual investors and purchases a range of financial assets

Bonds are considered less risky than stocks because...

Bondholders are paid before stockholders in the event a company fails

The difference between Treasury bonds and Treasury bills is that...

Bonds have the longest maturity, and bills have the shortest

In what ways do life insurance companies act as financial intermediaries?

I'm investing the insurance so I can get the money later

Savings

Income not used for consumption