Investing Test Review

What is the most common way that people buy stocks or bonds?

From a broker

Describe the relationship of risk and return with investing.

Higher rate of return = greater risk

Do you want your investment to earn at a higher or lower rate than the inflation rate?

Higher, so the rate gives more return

Define liquidity.

How easily you are able to access your money

Who should you contact if you would like to purchase stocks?

A broker

What are the different reasons you should invest?

-Helps to beat inflation and also increases wealth

What are the different characteristics of mutual funds?

-Potential depletion -Minimum initial and subsequent investment -Dividends and capital gain -Mutual fund taxation -Gross investment

What are the advantages of investing in mutual funds?

-You aren't putting all of your money in one stock, so there is less risk -diversify your portfolio and are professionally managed

What terms are used to describe when the stock market is doing well, and when the stock market is doing poorly?

-bull market means the market is doing well -bear market means the market is doing poorly

Why is issuing stock a popular method used to raise capital?

-company does not have to repay money -paying dividends is optional

What on the stock quote tells us the highest price that the stock sold for in the past year?

52 week high low

What are the 3 elements of time value of money that we learned about in the last unit? How can you take advantage of these?

Amount invested, interest rate, time. By being able to have control over one's money invested.

What is diversification? What is the point of a diversified portfolio?

Diversification is a variety of assets to reduce risk or volatility by investing in a variety of assets.To lower the risk

What are the ways the value of a stock can change?

Dollar value increases/decreases, Stock split, and merger of stock units

Does the past performance of a stock tell us exactly what to expect for that stock in the future? Why?

No, because the economy and demand for that product can change

Will a stockholder always make a profit when they sell their shares of stock? Why?

No, the stock could do poorly

What does it mean to "pay yourself first"?

Put money into savings before paying any bills or expenses

What should investors research to learn a sense of the economy? What are 3 indicators?

Researching stocks. The three are Dow, SnP 500, and NASDAQ

Describe inflation.

Sustained increase in the general level of prices for goods and services

What is compound interest? Explain.

You earn interest on the money in your account and interest

What is a bond?

a type of debt that a company issues to investors for a specified amount of time

Countercyclical

always needed, grocery stores, utility stores

Blue chip

household names, good reputation, less risky

Speculative

internet games, high risk

Value

investment bargon due to being discounted temporarily

Growth

new/ expanding product lines

Income

pay higher than average dividends, beta is less than 1

Cyclical

they are good when business economy is up hotels, airlines