finance module 4

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Kendra just received a promotion with a nice raise. She has her spending plan under control, so she decides to adjust her long-range investing plan now that she can take on more investment risk. Which one of the following types of investments potentially has the highest risk and is most likely a higher rate of return for Kendra?

stocks

the basic rule of a risk-to-return relationship is that ...

the higher the risk, the higher the return rate

true or false: Although he is only 17, Sean can invest in a retirement fund because he earns income from his summer job at the health club

true

true or false: Three steps to build wealth include 1) Have enough income to invest, 2) Make a plan, and 3) Put money to work by investing.

true

Along with diversifying investments, what are two other recommended investing practices?

start early do research before investing in something

a type of growth investment

stock

a system where the public can buy or sell stock shares

stock exchange

highest to lowest potential risk

1: collectible 2: stock 3: mutual fund 4: corporate bond 5: savings account

Highest to lowest potential return

1: start up stock 2: balanced mutual fund 3: U.S. savings bond 4: certificate of deposit 5: money market deposit account

What is the historical long-term annual average rate of inflation?

3%

On $500 earning 5 percent APY, calculate the ending balance after 2 years if interest is compounded semiannually

500 (1+0.05/2)^2*2 = $551.91

savings account

Kyle isn't willing to take much risk with his money as he sets money aside to use when he buys a car next year. Which one of the following types of investments potentially has the lowest investment risk while also growing in value?

Monica starts a mutual fund with $500 and adds $500 to her mutual fund every year for another nine years. Mason decides to wait 10 years so he can save up a lump sum of $5,000 to invest at one time in a mutual fund. If both Monica and Mason earn on average of 7 percent APY, who will have the larger mutual fund balance in 20 years?

Monica

Which statement below is true about mutual funds?

Mutual funds offer guaranteed returns

Stock Quotations

NYSE: New York Stock Exchange TWTR: Twitter ticker symbol Bid: asking to buy Ask: seller's offer to sell Last: last price paid for a share of the stock

the time value of money can best be explained using which one of the following concepts?

a dollar today is worth more than a dollar tomorrow

something of value that can be changed into cash

asset

List two strategies that a new investor should avoid when investing

borrowing to invest blind trust in any source of information

Which one of the following is not an example of investing?

buying a car to get to work

Given the same principal amount and interest of 1.3 percent APY for all options below, which option will earn the most interest over three years?

certificate of deposit that has interest compounded daily

earning interest on previously earned interest plus the principle amount

compounding

Spreading your money among different savings and investments

diversification

difference between saving and investing?

saving: put away money to use later investing: put away money to earn more money for you

a type of income investment

savings account

two reasons to save money in a bank or credit union savings account rather than hiding it in an envelope in your room

earn interest on the money less tempted to use the money impulsively

true or false: If you buy Hershey stock, you share ownership in the company and you can vote on the types of chocolate that will be produced

false

true or false: Minors have to wait until they are adults before they can buy and stocks and bonds.

false

true or false: Most wealthy people have gained their fortunes by winning the lottery or inheriting a large sum of money.

false

true or false: The best time to start investing is after working on a job full-time for at least five years.

false

Explain the dollar cost averaging investing strategy by writing a narrative description or by creating an example

invest a set amount of money at regular intervals

two reasons why investment experts recommend diversifying investments

less of a chance of loosing money increases chances of growth

which of the following options is most likely to grow at a rate higher than inflation?

mutual fund


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