final test | FIN 3140 - PERSONAL FINANCE, Quizzes of Business Finance

Download final test | FIN 3140 - PERSONAL FINANCE and more Quizzes Business Finance in PDF only on Docsity! TERM 1 Investing is all about...? DEFINITION 1 Future expectations TERM 2 Liquidity DEFINITION 2 speed with which an investment can be turned into cash; at a reasonable price TERM 3 default risk DEFINITION 3 probability firm will be unable to meet contractual obligationsex)Circut City TERM 4 Interest Rate Risk DEFINITION 4 probability that interest rates will move against you TERM 5 Investment Horizon DEFINITION 5 length of time to invest TERM 6 Equity Securities DEFINITION 6 gives you partial ownership-------------ex)stocksReturns: Capital Gains and Dividends TERM 7 Debt Securities DEFINITION 7 Lending your money.................Ex) CDS, bonds, treasuries.Returns: Capital gains and interest TERM 8 Transaction costs DEFINITION 8 what you give up to get something else TERM 9 Stock prices move in.... DEFINITION 9 the same direction TERM 10 Debt securities prices move.... DEFINITION 10 in the same direction TERM 21 Treasury Securities DEFINITION 21 bonds/notes/bills: issued by US GOVBonds take the longest to mature and bills take the shortest.Marketable: bond mrkt is MUCH larger than the stock market TERM 22 Savings bonds DEFINITION 22 not marketable******a bond's face price is not always its purchase price TERM 23 MMDA DEFINITION 23 Money Market deposit acts TERM 24 money market DEFINITION 24 trading in short term securities (they mature in less than a year)*high liquidity- low risk with low return*pay a variable interest rate*can work: for or against you*minimum balance required*opportunity costs(what could you do with this money instead?)*penalty (if balance falls below minimum*may have limited check writing TERM 25 Depository Accounts DEFINITION 25 Usually FDIC insured TERM 26 Index DEFINITION 26 a specified group of securitiestypically, diversified around some characteristicmore data points make measures TERM 27 Indexes let investors? DEFINITION 27 gauge general market conditionscompare their returns to an index: benchmarklook at past behavior ***attempt to forecast future behavior TERM 28 Index Examples DEFINITION 28 CPI----consumer price index: measures inflationBond Indexes TERM 29 DEBT holders (bonds) DEFINITION 29 entitled to payments of: principle and interestreturns are NOT impacted by firms earningsyou can force them into bankruptcy if payments arent made TERM 30 Shareholders (stocks) DEFINITION 30 no entitlement to any paymentsshare in financial profits (capital gains/or dividends) TERM 31 In times of bankruptcy...when do shareholders get paid DEFINITION 31 all creditor obligations must be paid before shareholders receive anything.Shareholders should plan on losing total investment TERM 32 In times of bankruptcy...when do bondholders get paid? DEFINITION 32 loss depends on the courts, firm assets and debt seniority TERM 33 Do market conditions effect securities movements? DEFINITION 33 GREATLY TERM 34 Bull Market DEFINITION 34 Investor optimismrising asset pricesoccurs during economic expansions TERM 35 bear market DEFINITION 35 investor pessimismfalling asset pricesoccurs during economic slowdowns TERM 46 risk and return trade off DEFINITION 46 the most return there is the most risk of you not getting it.with more risk you need a longer investment time TERM 47 stock performance DEFINITION 47 no investment types beat stocks for long term returnsdiversification and liquidity: lower risk without lowering return averages.long time horizons improve accuracy of averages TERM 48 Increasing investment costs does what? DEFINITION 48 lowers returns.Trading frequentlymanagement costsfeesanalysis TERM 49 asset allocations DEFINITION 49 choice of investment percentages to be held in cash and bondsimpacts long term returns more than individual firm choices TERM 50 buy and hold strategy: long term DEFINITION 50 keep monitoringhave a pre-planned exit strategy TERM 51 market timing strategy: short term DEFINITION 51 try to buy at the very lowest price (the bottom)try to sell at the very highest price (the top)Frequent trading causes high commission coststrying to predict the future results in trading on emotion TERM 52 laddering DEFINITION 52 purpose for buying debt securitiesLaddering is an investment technique that requires investors to purchase multiple financial products with different maturity dates. TERM 53 dollar cost averaging DEFINITION 53 buy equal dollar amounts if same investment at equal intervalspurpose: for entering the marketovertime (buy more when the price is down and buy less when the price is up. TERM 54 mutual funds DEFINITION 54 investment products sold by financial fimspurpose: pool the savings of many investorsService: buy and sell securitiesProduct: a portfolio of securities TERM 55 total returns (mutual funds) DEFINITION 55 dividend/ interest distributionscapital gains distributionscapital gains TERM 56 what do mutual funds do? DEFINITION 56 combine multiple securities into a single product.instant diversification at lower cost to buyerprofessional management TERM 57 disadvantages of mutual funds DEFINITION 57 costs: loads and feestaxes of fund distributions: Capital gains distributions: short or long term on how long the fund held the security***taxes are owed when you sell the fund shares TERM 58 diversification DEFINITION 58 reduces investment risk without reducing the average return.spreads risk over multiple investments TERM 59 Buying and selling mutual fund shares... DEFINITION 59 trade directly with the mutual fund orthrough employer- offered retirement plan TERM 60 fund's value DEFINITION 60 portfolio value minus all funds expenses TERM 71 mutual fund fees: one times only costs DEFINITION 71 loads: are sales commission *usually charged @ purchase or at saleno-load funds: dont charge sales commissions TERM 72 mutual fees: yearly DEFINITION 72 mgmt feesadministrative/operational: business cots12b-1 fees:( hidden costs) advertising and marketing costs *increase cost; not performancecosts reduce returns TERM 73 prospectus DEFINITION 73 packet with-------fund's goals, strategies eliminate riskmanager: time with fundcosts (fund expenses( *loads *management fees *administrative/operational *12b-1 feesHow to redeem and buy shares TERM 74 retirement pensions DEFINITION 74 7 percent annual rate of return received at age 67 TERM 75 Defined benefit plan DEFINITION 75 employer funded non contributory -benefit to employee: specific payment (know what urgetting)typically uses a formula: 1. earnings 2. #of yrs on jobemployer carries total risk TERM 76 defined contribution plan: employee DEFINITION 76 employee:- has individual account-contributions *may be required to add: some % of salary *beyond that: employee choice up to maximum *maximum amt: limited by law TERM 77 defined contribution plan: employer DEFINITION 77 employer's choice:*no contributions*match to: some percentage*regardless of employee: contribute TERM 78 defined contribution plan DEFINITION 78 amount at retirement unknownemployee does as well as: the investmentsemployee bears: all riskEmployer: supplies investment menuemployee choices limited to menu TERM 79 vesting DEFINITION 79 right to all/ part of employer's contributions -involves only: employer contributions - your contributions are always yours*typically linked to the number of years youve worked. TERM 80 pensions-if you change jobs: DEFINITION 80 if you change jobs:avoid taxes/penalties *leave with former employer * transfer to new employer *rollover to appropriate IRA TERM 81 401(K)/403(b) DEFINITION 81 do it yourself plan -menu of funds: *employer determined: limited choices *usually has a variety of mutual fund types - contributions: pre-taxed $ *reduces taxable income -taxes paid at withdrawal TERM 82 401(K) contributions and earnings DEFINITION 82 tax deferredlimits imposed by: employers and/or US GOVcompany match: may require vestingwithdrawals taxed at: ordinary tax ratepenalty on early withdrawals TERM 83 IRAs DEFINITION 83 Individual retirement accounts (both traditional and ROTH)tax umbrella for assets it contains: you choose assets **must be made with earned money (except spousal IRA) TERM 84 Traditional IRA DEFINITION 84 individual---(no employer)contributions: limited amountmay be taxdeductiblealways tax deferred*earnings are also tax deferredwithdrawals are manadatory *taxed at: ordinary tax rate in year takenearly withdrawals penalty TERM 85 ROTH IRA DEFINITION 85 Individual---(no employer)limited contributionsmade with after taxed dollars(you were already taxed)earnings on contributions:tax free after 5 yearsno taxes required at withdrawalno penalty access to contributions *some restrictionswithdrawals not required