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Personal Finance-ch8

Chapter 8 Investing

QuestionAnswer
The benefit of diversification in your investments is reduced risk
The reason people save and invest is to enable their money to make money
Quality of an asset that permits it to be converted quickly into cash without loss of value; availability of money liquidity
Money that is invested, either tax deferred or tax free, within a retirement plan tax-favored dollars
The government agency responsible for regulating the stock market Securities Exchange
A savings plan operated by a state or educational institution designed to help families set aside funds for future college costs 529 Plan
Distribution of a portion of a company's earnings, decided by the board of directors to a class of its shareholders dividends
Long-term investments, properly diversified, include which type of mutual funds? Growth, growth and income, international, aggressive growth
Savings accounts and money market accounts are most appropriate for Emergency funds and short term goals
A savings account sold by an insurance company, designed to provide payments to the holder at specified intervals, usually after retirement. Annuity
To ensure that some of your retirement savings will not be subject to income tax upon withdrawal, you would contribute to Roth IRA
A list of your investments portfolio
Federal agency responsible for collecting taxes and for the interpretation and enforcement of the Internal Revenue Code Internal Revenue Service
Employee benefits packages are non-wage compensations provided to employees in addition to their normal wages or salaries
The Rule of 72 is a quick way to calculate the length of time it will take to double a sum of money
Explain how compound interest works it is interest paid on interest previously earned. This allows your investment to grow more quickly.
A young investor willing to take moderate risk for above average growth would be most interested in mutual funds
Securities that represent part ownership or equity in a corporation stocks
Piece of ownership in a company, mutual fund or other investment share
Relationship of substantial reward compared to the amount of risk taken risk-return ratio
How is the Rule of 72 calculated? Divide 72 by the expected interest rate
Why do single stocks carry a high degree of risk? there is no diversification in your investment
Why do mutual funds card a less degree? it ensures diversification and, therefore, less risk
Why should you never borrow money and then invest it? it increases the risk of the investment. If you lose the money, you are still left with payments on it.
Explain the risk-return ratio. this is used by investors to compare the expected returns of an investment to the amount of risk they take to get the returns. Usually the higher the risk, the higher the return.
Created by: gcowing
 

 



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