Personal Finance (Chapter 7)

A contract purchased from a life insurance company that guarantees a series of regular payments for a set time

Annuity

A contract purchased from a life insurance company that guarantees a series of regular payments for a set time.

Annuity

A combination of choices within a mutal fund account or another investment account

Asset allocation

Some investments are considered tax shelters. When are taxes due on this type of investment?

At the same time the money is withdrawn

A period of time when stock prices are steadily decreasing

Bear market

A period of time when stock prices are steadily increasing

Bull market

Which of the following are different types of low risk bonds discussed in the presentations?

- Government bonds: issued by US Treasury, low risk, and no state or local taxes on the income. - Corporate bonds: form of borrowing by a corporation, interest is subject to taxes. - Callable, Speculative Grade, and Municipal Bonds

What is the annual interest rate that will cause your investment to double in 6 years?

12%

Gain in dividends Jan bought 30 shares of stock at $25.00 per share. The company paid dividends of $1.00 per share last year. How much did she make on her dividends (in dollars) and what was her ROI?

30 X $25.00 = $750.00 purchase price 30 X $1.00 = $30.00 profit in dividends $30.00 / $750.00 = .04 or 4.0% ROI

Gain in Principle Bill bought 40 shares of stock at $22.15 per share. A year later, he sold them for $28.90 a share. How much did he make in dollars, and what was his return on investment (ROI)?

40 X $22.15 = 886.00 purchase price 40 X $28.90 = 1156.00 sales price $1156.00 - $886.00 = 270.00 profit in dollars $270.00 / $886.00 = .304 or 30.4 ROI

What is the tax-deferred plan for employees of nonprofit organizations?

403(b) plan

Gain in principles and dividends Jack bought 50 shares of stock at $18.22 per share. That year, he received total dividends of $72.88. At the end of the year, his stock was valued at $19.11 per share. What was his ROI?

50 X $18.22 = $911.00 purchase price 50 X $19.11 = $955.50 value at end of year $955.50 - $911.00 = $44.50 gain in value $44.50 + $72.88 = $117.38 total profit $117.38 / $911.00 = 0.1288 or 12.8% ROI

Chris bought 50 shares of stock at $25.50 per share and sold them for $27.00 per share. What was his ROI?

6%

Which of these options is a liquid investment?

Checking account

An account used to deposit money from stock sales

Clearing account

An item of value that is bought and sold in a market, such as corn

Commodity

The difference between a bond's selling price and its face value when the selling price is lower than the face value

Discount

Holding a variety of investments to reduce risk is known as

Diversification

A 401K is a tax-deferred plan for employees of nonprofit organizations.

False

Retirement planning should begin within 5 years of retirement.

False

When investing, the higher the risk you are willing to take the less return you can expect.

False

Unit 7

Financial Investing

If you want to start investing what is the first thing you should do?

Gather information and then put money in what you can understand.

The chance that prices in general will rise faster than the return on an investment is

Inflation risk

How does investing differ from saving?

Investing is for long term growth.

A collection of assets, such as stocks, bonds, and real estate

Investment portfolio

A measure of the ability to turn an asset into cash quickly

Liquidity

What is a medium-risk investment choice?

Mutual funds

Which of the following ARE NOT a reason to consider rental properties as a high risk?

Paying cash for the property reduces risk In addition, if you didn't pay cash for the rental property you have an added risk of a mortgage payment and events happening which cause you to miss mortgage payments. When you pay cash for a rental property investment, it significantly reduces the risk.

The chance that some law, policy, war or other current event will affect the value of an investment is

Political risk

Why is portability of a retirement account important?

Portability of a retirement account means that you can take it with you when you leave or change jobs.

What does it mean when bonds are sold at a premium? At a discount?

Premium: A bond is sold for more than the face value Discount: A bond is sold for less than the face value

What is one illiquid investment?

Real estate

To turn something, such as a bond, and receive cash in exchange

Redeem

The nontaxable transfer of funds from one qualified retirement plan to another

Rollover

How would you earn a capital gain on your stock?

Selling the stock for a profit Dividends being paid on the stocks

Saving/investing options has the highest risk

Stocks

Shares of ownership in a corporation

Stocks

A long-term, planned approach to making investments is called

Systematic investing

An investment that allows the investor to legally avoid or reduce income tax

Tax shelter

At what age must your money be withdrawn in an IRA? In a Roth IRA?

The IRA is at 70 1/2 years old and the Roth IRA has no age limit

Why are collectibles considered a high-risk investment?

The popularity of a particular item can fall quickly and leave the collectible item of little to no value. Collectibles are considered high risk, because the popularity of a particular item can fall quickly and leave the collectible item of little to no value.

What is the most common use of an annuity?

They are used for retirement income

The difference between savings and investments is that savings is money set aside short term for purchases that will be made in the near future. Investments is putting money aside into long-term financial instruments/investments that will cause the value to grow.

True

You know a financial adviser has the "heart of a teacher" because you learn from them.

True

Which of these options have the highest risk?

US Savings Bonds Stock Savings account Money Market Accounts Stock

Retirment Planning should begin

at an early age

The chance that prices in general will rise faster than the return on an investment is

inflation risk

The potential for change in the value of an investment is

investment risk

Features of an ideal investment.

no cost to invest no risk easy to invest high rate of return

When investing, the higher the risk you are willing to take

the greater your possible return may be