Personal Finance Midterm Review

Blue-chip company

A large, established company known for its quality and its reputation for paying dividends

stock market index

A measure of average stock prices that gives a general indication of the market

Jamie owned 300 shares of stock in a certain company, worth $10 per share. Then, the company announced that his 300 shares would become 600 shares, worth $5 per share. This is an illustration of

A stock split

With a lending investment, investors do which of the following:

Allow borrowers to use their money for a price

Market Capitalization

An indicator of the size of a public company, as measured by the total dollar value of its stock; calculated by multiplying share price by number of outstanding shares; companies are often categorized as small cap, mid cap, or large cap, though the specific dollar categories vary by source (more that 10 billion dollars is large)

stockholder

Anyone who owns stock in a corporation; also known as a shareholder

Mutual funds that contain both stocks and bonds are known as

Balanced funds

Which of the following is not a benefit of investing in bonds:

Bringing you high returns.

Robyn bought $100 worth of stock in a company, and now it's worth $150. This is an illustration of

Capital appreciation

Of the following ownership investments, which involves owning items that gain or lose value over time:

Collectibles

Which type of stock comes with voting rights?

Common

Which of the following is not a loan to a governing body:

Corporate bond.

Teri decided to invest in a few different mutual funds rather than put all her investment dollars into one or two individual stocks. A stock in one of her mutual funds went bust, but since her money was spread out, Teri wasn't significantly affected. What advantage of mutual funds does Teri's situation illustrate?

Diversification

Non-profit organizations often pool and invest donated money in

Endowment funds

The ownership investment with the greatest risk of personal loss is

Entrepreneurship

What is the FDIC?

Federal Deposit Insurance Corporation - Insure deposits up to $250,000

Which of the following is the best place to buy shares in a mutual fund:

Fidelity Investments

Which of the following most accurately describes the relationship between risk and return:

For the potential of a high return, you usually accept a high risk.

Which of the following is a factor that determines how much investment risk a person can handle:

Goals

Which of the following is considered a reliable bond:

Government.

Which of the following is a disadvantage of owning stock:

High degree of risk

Rule of 72

How long it will take for an investment to double divide 72 by interest rate %

Which of the following best describes the relationship between bonds and the stock market:

Inverse

Which of the following is an example of a real estate investment:

Land to be developed in the future

Melinda wants to invest in a bond, but her main concern is how soon she'll be able to access the money she's invested. Melinda needs to look at the

Liquidity

The price of a mutual fund's shares is determined by

Net asset value.

Which of the following best describes a marketable bond:

One that is bought and sold in the open market

With an ownership investment, investors do which of the following:

Pay for the right to own something

Investors take a risk for the potential of receiving which of the following:

Return

In investing, legal lending or owning agreements between individuals, businesses, or governments are known as

Securities

penny stock

Speculative stocks that sell at very low prices, usually $1 or less per share

Of the following ownership investments, which allows access to an "expert" manager:

Stock mutual funds

speculative stocks

Stocks issued by companies that have not yet established themselves (normally penny stocks)

growth stocks

Stocks that achieve capital appreciation rather than paying dividends (profits go back into the company)

domestic stocks

Stocks that are issued by companies in the country where you live (USA)

defensive stocks

Stocks whose performance is independent of the economy (water, medicine, groceries)

Which of the following is not an important variable of a bond fund:

The amount of time you spend researching the bonds in the fund

Kent wants to learn as much as possible about the mutual fund he's thinking of investing in. Which of the following is the best place he could go for detailed information:

The fund's prospectus

Which of the following is a disadvantage of investing in a savings account:

The rate of return doesn't keep up with inflation

Businesses usually invest in

Themselves

Which of the following is an advantage of investing in bonds:

They are very low risk.

Which of the following is not a reason that companies issue stock:

To gain respect

Which type of stock is considered a "bargain"?

Value

Which of the following is an advantage of a money market account over a savings account:

You can often write checks from a money market account

Which of the following is a true statement about certificates of deposit:

You must pay a penalty for withdrawing your money early

common stock

a basic share of ownership in a company that comes with voting rights

preferred stock

a basic share of ownership in a corporation that comes with extra privileges but no voting rights (if the company goes under, they get there money before common stock holders)

Share

a piece of ownership in a corporation (also known as stock)

stock exchange

a place (physical or virtual) where stocks are traded by brokers who represent buyers and sellers

secondary market

a place where investors can buy and sell securities that have been issued by a corporation (NASDAQ & NYSE)

dividend

a portion of a company's profits, paid to shareholders, usually quarterly

financial goal

a specific short (less than a year) or long term (a year or more) objective that is part of a financial plan; should be specific, measurable, attainable, results-oriented, and time bound

inflation

an increase in the costs of goods or services

capital appreciation

an increase in the price of the stock you own ex: I bought stock for $40 and it went up to $45

shareholder

anyone who owns stock in a corporation (also known as stock holder)

needs

basic purchases that are essential for survival

When Janine wants to know what others are willing to pay for a bond she owns, she looks at the

bid price.

Darron is investigating a few corporate bonds for investment. He wants to know how likely it is that the corporations will pay back what they've borrowed. Darron needs to look at the

bond rating.

investing

building wealth by using money to make money

Since John wants to know the bond's interest rate, he needs to look at the bond's

coupon.

Because stocks in pharmaceutical companies hold their value regardless of the state of the economy, they are known as __________ stocks.

defensive

The biggest risk to a real estate investment is

depreciation

A company that Marcus invested in has earned a profit, and now Marcus is receiving a cash payment. This is an illustration of

dividends.

stock split

dividing a corporations existing stock into multiple shares (stock become too pricey so they split it to make it more affordable)

Compounding

earning interest upon interest

"Spiders" and "cubes" are types of

exchange-traded funds.

Commission fees associated with mutual funds are known as

loads.

Income

money you get

The purpose of the risk pyramid is to show a comparison of

one investment to another

A mutual fund that has no limit on the number of shares it can issue or the amount of money it can hold is called a(n)

open-end fund.

A stock with a price of $1 or less is known as a __________ stock.

penny

Ownership investments are ideal for investors who are

risk-tolerant.

A place where investors can trade securities that have been issued by a corporation is known as a(n)

secondary market.

stock

shares or units of ownership in a corporation

To get a general idea of the direction of the stock market today, check a

stock market index.

foreign stocks

stocks issued by companies is countries other than one in which you live

value stocks

stocks that trade at lower-than-average prices because they have been overlooked or undervalued by investors (believed to go up)

cyclical stock

stocks whose performance is tied to the overall economy; when the economy expands these stocks rise quickly, and when the economy contracts, they fall quickly

saving

taking a portion of your current income and putting it away to use in the future

IPO (initial public offering)

the introduction of a corporations stock to the market (first time a company goes one the stock market)

interest

the reward or cost of lending or borrowing money, usually figured as a percentage of the amount

expenses

things that you have to pay

What is a budget?

to save and spend your money wisely

A fund that invests in stocks that tend to be undervalued or overlooked is called a

value fund.

What a bond brings you over a period of time at a particular price is called the bond's

yield.