Chapter 11 econ.
Mutual fund
A company that sells stock in itself to individual investors
Certificate of deposit
A document showing that an investor has made an interest-bearing loan to a bank.
Finance company
A firm that specializes in making loans directly to consumers. Also buys installment contracts from merchants who sell goods on credit.
Bond
A formal long-term contract that requires repayment of borrowed money and interest on the borrowed funds at regular intervals overtime.
Pension fund
A fund set up to collect income and disburse payments to those persons eligible for retirement, old-age, or disability benefits.
Bond
A long-term investment, with the price determined by supply, demand, and the buyer's assessment of repayment risk.
Primary market
A market where only the original issuer can sell or repurchase a financial asset
Bear market
A mean or nasty market which the prices of equities falling sharply for several months or years in a row
Financial system
A network of savers, investors, and financial institutions that works together to transfer savings to investors.
Stockbroker
A person who buys or sells equities for clients
Stock or securities exchange
A place where buyers and sellers meet to trade stocks
Pension
A regular payment intended to provide income security to someone who has worked a certain number of years, reached a specific age, or suffered a particular kind of injury.
Option
A special type of futures contract that gives the buyer the right to cancel the contract
Bull market
A strong market which the prices moving up for several months or years in a row
401(k) plan
A tax-deferred investment and savings plan that acts as a personal pension fund for employees
Futures contract
An agreement to buy or sell any specific future date at a predetermined price
Over-the-counter market
An electronic marketplace for securities that are not traded on organized exchanges
Cities issue bonds to pay for baseball parks and football stadiums, or to fund libraries, parks, and other civic improvements.
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Investments include CDs, bonds, bills, and IRAs of all which vary in cost, maturity, and risk.
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Investors can purchase savings bonds through banks and financial intermediaries, obtain them through payroll savings plans, or buy them directly from the US treasury over the Internet.
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Investors can purchase stock through stockbrokers on exchange through mutual funds or through 401K plans
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Investors consider their reasons for investing.
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Investors generally decide on the highest level of risk they are willing to accept. They then try to find a bond that has the best current yield.
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Investors invest consistently over long periods of time. The amount invested is not as important as investing on a regular basis.
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Investors usually purchase corporate bonds as long-term investments, but these bonds can be quickly sold if investors need cash for other purposes
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Municipal bonds are generally regarded as safe investments.
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Municipal bonds are generally tax-exempt meaning that the federal government does not tax the interest paid to investors.
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Mutual funds allow people to invest in the market without risking all they have in one or a few companies
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Paperless bonds are purchased directly from the treasury over the Internet
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Savings bonds are popular because they are easy to obtain and there is virtually no risk of default
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States issue bonds to finance highways, state buildings, and some public works.
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Supply and demand among buyers and sellers will then establish the final price of the bonds.
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The 401(k)s popular because it provides a simple consistent and relatively safe way for employees to save and you can take the 401(k) plan with you if you change jobs
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The financial system has three parts the 1. is made up of funds that a saver transfers to a borrower. 2. consists of the financial assets that certify conditions of the loan 3. comprises the organizations that bring the surplus funds in financial assets together.
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The interest received in the price paid determine the actual current yield of each bond.
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The modern investor has a wide range of financial assets from which to choose. These include certificates of deposit, bonds, and treasury notes and bills. They vary in cost, maturity, and risk.
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The pension find is another no depository financial institution.
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There are two kinds of saving bonds one is paper-based and the other is paperless
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With CDs investors can also select the length of maturity, giving them an opportunity to tailor the expiration date to future expenditures such as college tuition, a vacation, or some other expense.
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treasury notes and bonds are popular because they are generally regarded as the safest of all financial assets
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Certificates of deposits are one of the most common forms of investments available
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Some financial intermediaries are:
-commercial banks -saving and loan associations -savings banks -mutual savings banks -credit unions -life insurance companies -mutual funds -pension funds -finance companies
As an investor you must consider the level of risk that you can tolerate.
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Banks, credit unions and saving associations obtain funds when they accept regular deposits.
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Bonds issued by the US government are considered to be the safest of all financial assets because they have almost no risk of ever being in default. Because of this, these bonds also have the lowest yields.
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Certificates of deposit are really loans investors make to financial institutions.
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Municipal bonds
Bonds issued by state and local governments.
Financial assets
Documents of claims on the property and the income of the borrower.
Savings
Dollars that become available when people abstain from consumption
Junk bonds
Exceptionally risky bonds with a Standard and Poor's rating of BB or lower, or a Moody's rating of a Ba or lower-carry a high rate of return as compensation for the higher possibility of default.
Secondary market
Existing financial assets can be resold to new owners
Treasury bonds
Have a maturity date of 30 years
Individual retirement accounts
Long-term tax sheltered time deposit that can be set up as a part of an individual retirement plan
Spot market
In this market a transaction is made immediately at the prevailing price
Treasury bill
Is short-term obligation with the maturity of 4, 13, 26, or 52 weeks and a minimum denomination of $100
Standard & Poor's 500
It uses the price changes of 500 representative stocks as an indicator of overall market performance
Savings bonds
Low denomination, not transferable bonds issued by the US government and are also called EE savings bonds.
Capital market
Money is loaned for more than one year
Money market
Money is loaned for periods of less than one year
Nonbank financial institutions
Non-depository institutions that also channel savings to borrowers.
How can people save their money in a number of ways?
Open savings account, buy a bond, or cds
Equities
Shares of common stock that represent ownership of corporations form another type of financial asset that is available to investors
Beneficiary
Someone who inherits the ownership of the financial asset if the purchaser dies
What are types of financial assets?
Stocks, or ownership claims on a corporation.
Saving
The absence of spending
Current yield
The annual interest divided by the purchase price.
Efficient market hypothesis
The argument that stocks are usually priced correctly and that bargains are hard to find because stocks are followed closely by so many investors
Risk
The degree to which the outcome is uncertain but a probable outcome can be estimated.
Maturity
The life of the bond.
Dow Jones industrial average
The most popular and widely publicized measure of stock market performance
Net asset value
The net value of the mutual fund and divided by the number of shares issued by the mutual fund
Portfolio diversification
The practice of holding a large number of different stocks so that increases and some stocks can offset declines in others
Premium
The price the insured pays for this policy, usually paid monthly, quarterly, or annually for the length of the protection.
Par value
The principle or the total amount initially borrowed that must be repaid to the lender at maturity.
Call option
The right to buy something at a specific future price
Put option
The right to sell something at a specific future price
Coupon rate
The stated interest on the debt.
Treasury notes
United States government obligations with maturities of 2 to 10 years