Business Final
Redeeming your mutual funds result in a charge called what?
Redemption fees or back-end load fees
what federal agency regulates the securities market?
SEC
whats the retirement plan for for-profit orgs where the employers match the employees contributions
Thrift and Saving plan: supplement pension and other fringe benefits. contributes an amount equal to a set proportion of the employee's contribution.
Whats the ERISA do?
[emplyee retirement income security act] is a law passed in 74 to ensure workers eligiblefor pensions actually recieve the benefits. permits uncovered workers to est. individual tax-sheltered retirement plans
bear market
a condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices
bond
a debt investment in which an investor loans money to an entity [corporate or governmental] that borrows the funds for a defined period of time at a fixed interest rate
codicil
a document that legally modifies a will without revoking it
front end load
a fund that charged a fee at time of purchase
what is a bull market
a market condition normally associated with investor optimism, economic recoery, and expansion; characterized by generally rising securities prices
what are exchange traded mutual funds [ETF's]
a mutual fund that trades as a listed security [principally on the NYSE Amex Equities AMEX], usually structured as an index fund that's set up to match the performance of a certain market segment
What's an investment plan?
a statement preferrably written that specifies how investment capital will be invested to achieve a specific goal
interest rate risk
a type of risk resulting from changing market interest rates that mainly affects fixed-income securities
What's the single most important reason for investing?
accumulating funds for retirement
What's return?
all future cash flow from original investment
whats the retirement age for social security today? Will it stay that way in the future?
anyone born in 1960 or later, the SS admin defines "full retirement age" as 67. if born before 1960 your age is between 65-67
goal of estate planning?
avoid family stress, minimize probate expenses, minimize estate taxes, give survivors flexibility, avoid leaving "too much too soon"
difference between debt financing and equity financing for a corporation?
bond compared to stock
Name three types of risk
business, financial, market, event, purchasing, and power
what is a traditional IRA?
can be opened by anyone without a retirement plan at his or her place of employment, regardless of income level or whatev----these are not tax deductible when est. and yes they are tax free with your earnings
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portfolio
collections of securities assembled for the purpose of meeting common investment goals
what is a back end load mutual fund?
commission charged for redeeming fund shares
what's the difference between common stock and preferred stock?
common-basic, most popular stock; provides potential for double value preferred- has dollar rate and dividend rate stated on the stock certificate [preferred has the par value]
what do socially responsible funds NOT invest in?
companies that don't meet certain moral, ethical, or environmental tests.
why does an estate "break up"
death related costs, inflation, lack of liquidity, improper use of vehicles of transfer, and disabilities
whats the diff between a defined contribution plan and benefit plan
defined contribution plan: pension plan specifying contributions that bothe employer and employee must make benefit plan: pension plabe which the formula computing benefits is stipulated in its provisions. These are paid out regardless of how well/poorly the retirement funds are invested
intestate
dies without will, with heirs
dividend
distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. [dividends are paid every 6 mos]
What two returns do you expect from stocks?
dividends and/or appreciation in share price
living will
doc that precisely states the treatments a person wants if he or she becomes terminally ill
how often should you review your estate plan?
every 3-5 yrs
ex of second-level death related cost
fees for attorneys, appraisers, accountants, probate expenses, admin costs, federal estate taxes, and state death taxes
mutual fund
financial services org that recieves money from its shareholders and invests those funds on their behalf in a diversified portfolio of security. can be thought of as a "financial product" thats sold to the public by an investment company--another name for mutual fund is open end fund
annuity
fixed sum of money paid to someone each yr, typically the rest of their life.
What's the difference between a full service broker and a discount broker?
full service- a broker who, in addition to executing clients' transactions, offers a full array of brokerage services. Discount broker- has low overhead and charges low commissions and offers little or no services to investors
irrevocable living trust
grantor gives up right to revoke or terminate it
what is a fund called whose main goal is growth
growth fund or aggressive growth fund
whats a mutual fund called whose objectives are both growth and income
growth-and-income funds
aggressive growth fund
highly speculative investment vehicles that seek large profits from capital gains
stock beta
indication of it's price volatility, shows how responsive the stock is to changes in the overall stock market
whats the diff between a global mutual fund and an international mutual fund?
international mutual fund is a mutual fund that does all or most of its investing in foreign securities. in contrast, a global mutual fund is a class of international funds that invest not only in foreign securities but also in US companies--usually multinational firms
What's the difference between investing and speculating?
investing is the process of placing money in some medium such as stocks or bonds in the expectation of recieving a future benefit. speculating is a form of investing in which future value and expected returns are highly uncertain
What are the two elements of total return
investment and interest
diff between junk bonds and investment bonds
junk- highly speculative securities that have recieved low ratings from Moody's or Standard & Poor's
trust
legal relationship created when one party transfers property tp a second party for the benefit of third parties
what estate planning problem can be achieved by life insurance?
liquidity
diversification
major advantage of mutual funds to the small investor
what does it mean if a bond sells at premium
market value is higher than par
whats it mean if a bond sells at discount
market value is lower than par
to die "testate"
means to die with will, without heirs
first-level death related costs
medical bills for a final illness and funeral expense
What is the Roth IRA
newest kind, can be opened by couples filing jointly with adjusted gross incomes up to $166,000. has good tax features. all withdrawals are tax free as long as the account has been open for at least 5 yrs and the individual is over 59.5 yrs.
are Roth IRA's deductible when est.
no
What is the OTC market
over the counter market
testator
person who makes a will that provides for the disposition of property at their death
executor/executrix
personal rep of am estate designated in the decendents will
estate planning
process of developing a plan to administer and distribute your assets after death in a manner consistent with your wishes and the needs of your survivors, while minimizing taxes
round lot
quantity of 100 shares of stock or multiples thereof [odd lot is more expensive]
odd lot
quantity of fewer than 100 shares of a stock
The two returns you expect from securities are ...
return and growth
characteristics of blue chip stocks
safe, conservative, big and old companies, strongest and most respected [ex: walmart, IBM, Microsoft]
difference in interest between short term bonds and long term bonds?
short term matures 1-5 yrs, long term matures greater than 10
characteristics of speculative stock
stock purchased on little more than hope that its price per share will increase
charcteristics of defensive stock
stock whos price movements are usually contrary to movements in the business cycle [ex: mcD's, coca-cola]
characteristics of cyclical stock
stock whose price movements tend to parallel the various stages of the business cycle [ex: Ford]
what do balanced funds invest in?
stocks and bonds
Define: securities, do all securities involve risk?
stocks, bonds, and other financial instruments. Yes
What are reasons that people invest?
supplement curren income, reduce tax liability, make a major purchase, contribute to charity, increase wealth, to retire
form of joint ownership
tenancy by the entirety
what is NAV [net asset value]? how often is it calculating?
the current market value of all the securities the fund owns, less any liabilities, on a per share basis.
What's the relationship to risk and return?
the greater the risk, the greater the return
What is diversification? Does it increase or decrease risk?
the process of choosing securities with dissimilar risk-return characteristics in order to create a portfolio that provides an acceptable level of return and and acceptable exposure to risk, and it decreases risk
whats the most important advantage of a mutual fund
they are an easy and conveniet way to invest
what do companies like Value Line and Morningstar do?
they provide background information and assessments on a wide variety of funds
revocable living trust
trust in which the grantor reserves right to revoke the trust and regain the trust property
liquidity risk
type of risk associated with the inability to liquidate and investment conveniently and at a reasonable price
stock
type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings
whats a fund called whose objective is simply to match the market
value fund
What is risk?
volatility of asset value during a given time horizon
are roth IRA earnings tax free?
yes
3 parts of estate planning
-calculate needs -calculate income -plan to plug the gap
probate
-determined validity of will - process of a deceased's property being collected, debts and taxes being paid, remainder of the estate being distributed
4 major sources of retirement income
-estimated household expenditures in retirement -estimated income in retirement -inflation factor -funding the shortfall
4 unknown factors when planning retirement
-longevity -health -inflation -market risk
3 types of property in a probate estate
-real -personal -intangible
list common retirement planning mistakes
-they start too late on investing in the account -they put away too little -they invest too conservatively
3 advantages of investing in a mutual fund
1-achieve diversification in their investment holdings 2-obtain the services of a pro money manager 3-generate an attractive rate of return on their investment capital 4-offer great convenience
whats the retirement plan for members of a non-profit org?
401[b]
What two returns do you expect from bonds?
Interest plus return of the principal [face] value of the bond at maturity
closed end mutual fund
PPT def: 6% of funds-1 time sell, limited to certain investors book def: firm that issues a fixed number of shares which are themselves listed and traded like any other share of stock
whats an open end mutual fund?
PPT definition: 6% of funds- continuously selling, unlimited investors. book def: firm that has an unlimited number of shares that it buys and sells at a price based on the current market value of the securities it owns, also called a mutual fund
4 elements of a long-term investment strategy
Passive [buy and hold], Active [buy and sell], mutual fund- hire a pro to invest, direct investment- purchase stocks/bonds directly from company, dollar cost averaging- buy an equal dollar amount at equal intervals
