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Personal Finance-ch8
Chapter 8 Investing
| Question | Answer |
|---|---|
| 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 |
| 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. |
| How is saving different than investing? | Saving/money markets are good for short-term; investing is for long-term. Investing tries to make money; saving does not. |
| Why is it important to diversity your portfolio? | It reduces risk; don't put all your eggs in one basket. If one investment does not do well, you have not lost everything. |
| Savings accounts and money market accounts are most appropriate for: | Emergency funds and short-term goals |
| To ensure that some of your retirement savings will not be subject to income tax upon withdrawal, you would contribute to | Roth IRA |
| A young investor willing to take moderate risk for above-average growth would be most interested in _________ | mutual funds |
| In some cases, employers will match the employee contribution, but you should fund your plan whether your company matches or not. This statement refers to | 401k |
| A retirement plan found in nonprofit organizations such as churches, hospitals, and schools. | 403B |
| Money markets are great for your emergency fund due to their liquidity and stability. | true |
| A list of your investments | portfolio |
| Piece of ownership in a company, mutual fund, or other investment | share |
| Allows you to earn money on the amount you saved and the interest you already earned. | compound interest |
| What is the relationship between risk and return? | High risk = high return; low risk = low return |
| An actively managed mutual fund is | managed by a team or a manager who charges a fee |
| Index funds are popular because... | they are diversified and low cost and perform like the market. |
| When do you pay taxes on a Roth account? | before you put the money in the account |
Created by:
gcowing
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