Ch 11

______ in an investment means minimal risk of loss while _____ in an investment means a measure of uncertainty about an outcome

Safety; risk

True or false: Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

True

Mr. Jones wants to establish an emergency fund. His living expenses for his family are $2,000 per month. The minimum Mr. Jones should have in his emergency fund is:

$6,000

A good rule of thumb is to limit consumer credit payments to:

20% of after tax income.

______ is the rise of general levels of prices.

Inflation

Which of the following is not a useful question for establishing investment goals?

Is the investment approved by your financial planner?

True or false: Interest rate risk is the result of changes in the interest rates in an economy.

True

A mortgage bond is a corporate bond secured by various ______ of the issuing _____.

assets; firm

The amount that should be in an emergency fund is ___________ of living expenses.

at least 3 months

A bond indenture is a legal document that details all of the conditions relating to a ____ issue.

bond

The risk that the company you are investing in might go under is called:

business failure risk

A feature that allows the corporation to call in or buy outstanding bonds from current bondholders before the maturity date is a:

call feature

A bond that can be exchanged , at the owner's option, for a specified number of shares of the corporation's common stock is called a:

convertible bond

A corporation's written pledge to repay a specified amount of money with interest is called a:

corporate bond

Line of _______ is a short term loan that is approved before money is actually needed.

credit

A bond that is backed only by the reputation of the issuing corporation is called a:

debenture

If interest rates increase, the value of a bond will:

decrease

Cash advances from credit cards can be used in the case of a(n):

emergency

An amount of money that you obtain quickly in case of an immediate need is a(n):

emergency fund

The first step in investing is:

establishing goals

The dollar amount the bondholder will receive at a bond's maturity is called:

face value

A municipal government bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called:

general obligation bond

Credit lines and credit cards:

have a maximum dollar limit

Speculative investments assume a:

high level of risk

A trustee is a financially ____________ firm that acts as a bondholders' representative.

independent

Saving money for retirement would be considered a(n):

long-term goal

Fluctuation of prices of securities due to the behaviors of investors in the marketplace is known as:

market risk

"Want to make $300 quarterly for the next three years." The goal is not only specific, but because it mentions a number it is also:

measurable

For a bond, the maturity date is the date on which the corporation is to repay the borrowed _______.

money

A debt security issued by a state or local government is called a:

municipal bond

A bond that is repaid from the income generated by the project it is designed to finance is called a:

revenue bond

"Safe" investments include:

select mutual funds; certificates of deposit; government bonds

Speculative investments:

should not be considered for long-term growth

A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is a:

sinking fund

A high-risk investment made in the hope of earning a relatively large profit in a short time is called a:

speculative investment

Among other factors, a person's priorities, age, and personal _______ affects his or her investment goals.

values

When looking at investment you should ask yourself first:

what is important to you and what do you value?