Stocks vs. Bonds, Financial Literacy

balanced budget

an organized plan for money in which the total income equals the total expenses for a given period of time

Frances bought 144 shares of Dwyn Horticulture for $7.73 apiece. Her broker charged her a commission of $46.15 for the purchase. If the yearly dividend on Dwyn Horticulture is 61 cents per share, what is the annual yield on Frances's stock?

0.0758

bond

A bond is a certificate of debt that government organizations or businesses in the private sector use to raise capital.

labor

manual work a person does for wages (money)

interest

money paid by a borrower in exchange for using a lender's money for a certain period of time

deposit

money placed into a checking or savings account in a bank

withdrawal

money removed from a savings or checking account

loan

money that is borrowed by a person to purchase goods or services; the borrower agrees to repay the money over a set period of time with interest

payroll tax

money withheld from a worker's paycheck to fund federal programs such as Social Security and Medicare

cash

paper money and coins

borrower

someone who is borrowing money with a plan to pay it back

consumer

someone who uses money to buy goods

federal government

the United States government headquartered in Washington, D.C.

income

the amount of money received in a particular time (weekly, monthly, yearly) in exchange for work

local government

the government in a city, town, or country

state government

the government of a state, headquartered in the state's capital city such as Austin, TX

gross income

the total amount of money a worker earns BEFORE taxes and other deductions are withheld

net income

the total amount of money a worker takes home AFTER taxes and other deductions are withheld

account balance

the total amount of money in a bank account

balance

the total amount of money in a bank account at any given time

borrow

to obtain or use money from a bank or other person in order to purchase goods or services

withhold

to subtract taxes from a worker's gross income

financial records

written or typed documents that people keep regarding purchases, deposits, transfers, etc.

Four years ago, Sam invested in Grath Oil. She bought three of its $1,000 par value bonds at a market price of 93.938 and with an annual coupon rate of 6.5%. She also bought 450 shares of Grath Oil stock at $44.11, which has paid an annual dividend of $3.10 for each of the last ten years. Today, Grath Oil bonds have a market rate of 98.866 and Grath Oil stock sells for $45.55 per share.

The market price of the bonds is more stable than the price of the company's stock.

expense

an amount of money used to buy goods or services

stock

A stock is a certificate of ownership that can be purchased, sold, and traded.

income

Income is a financial gain through the sale or trade of assets.

Sandra owns a bond issued by Animite Energy with a par value of $1,000. The bond pays 7.6% interest yearly and had a market rate of 93.411 when Sandra bought it. If the current market rate of Animite Energy bonds is 102.382, what is the current yield on Sandra's bond?

Not 0.074

Why does the government issue only bonds, while companies issue both stocks and bonds?

Stock in a company gives the holder part-ownership of the company, with voting rights on big decisions, and profits when the value goes up. The people already vote on happenings in the government and inherently have ownership of the government.

Which of the following statements about length of investment is correct?

Stocks tend to be better long-term investments than bonds because bonds do not have the same growth potential that stocks do.

What is risk, as pertains to investing?

The chance you take that your investments will lose their value.

Brenda has money invested in Esti Transport. She owns two par value $1,000 bonds issued by Esti Transport, which currently sells bonds at a market rate of 101.345. She also owns 116 shares of Esti Transport stock, currently selling for $15.22 per share. If, when Brenda made her initial investments, Esti Transport bonds had a market rate of 96.562 and Esti Transport stock had a share price of $13.40, which side of Brenda's investment has gained a greater percent return, and how much greater is it?

The stocks showed a return that was 8.63 percentage points higher than that of the bonds.

Five years ago, Benjamin invested in Parchar Special Effects. He purchased four par value $1,000 bonds from Parchar Special Effects at a market rate of 96.230. Each bond had an interest rate of 7.2%. Benjamin also purchased 200 shares of stock in the same company, each of which cost $19.08 and had a yearly dividend of $2.04. Today, bonds from Parchar Special Effects have a market rate of 104.595, and stock in Parchar Special Effects costs $22.62. If Benjamin liquidates his portfolio and sells all of his investments, which aspect of his investment will have yielded him a greater total profit, and how much greater is it?

The stocks yielded $973.40 more in profits than the bonds.

Drew has invested in Iwad Records. He owns three par value $1,000 bonds from them, which are currently selling for 99.773. He also owns 600 shares of Iwad Records stock, the current value of which is $5.28 per share. If, when Drew made his investment, Iwad Records bonds had a market price of 94.561 and stock in the same company sold for $5.00 per share, which investment has increased in value more, and by how much?

The value of Drew's stocks has increased by $11.64 more than the value of his bonds

What does it mean that stocks and bonds are relatively liquid?

They are easier to buy and sell than other forms of investment.

risk

When managing investments, risk is quantitative/qualitative measure that examines the stability of an investment versus the stated returns of the investment.

yield

Yield is the income or profit from transactions or investments.

savings account

a bank account that allows a customer to deposit and withdraw money and earn interest from the bank

debit card

a card issued by a bank that a consumer uses to pay for purchases with money from a checking account

credit card

a card, issued by a bank, store, or other business, that is used to borrow money or buy goods and services on credit; consumers make regular payments to repay the bank, store, or business

sales tax

a city or state tax added to the price of an item you buy

electronic payment

a payment, made over the Internet, that allows money to be taken directly from a consumer's bank account

lender

a person or business that loans money

salary

a set payment that a person receives in exchange for work performed

check

a slip of paper that is filled out to allow a bank to take money from a checking account to pay for a purchase

check register

a table for recording information about checks written on a bank account

ledger

a table used to record income expenses

income tax

a yearly federal tax on a person's earnings

property tax

a yearly tax on homes, land, and other property that helps pay for local needs such as schools, firefighters, etc.

services

activities performed by people or businesses that satisfy other people's wants or needs

checking account

an account at a bank that allows a person to deposit or withdraw money and write checks to pay for goods and services

debit

an amount of money subtracted from a bank account balance

credit

an amount of money that a lender or business allows a person to use to purchase goods and services with a promise to repay the money, usually with interest