Lesson 48 pg. 136 - 138 Flashcards
Define stocks
stocks - the resources corporations gather by selling ownership in their business
Define corporation
corporation - a legal entity which is distinct from the people who own it
Define shares
shares - equal portions of a corporation’s stock
What is a stockholder?
No individual stockholder owns the whole business; each owns a percentage of the whole business determined by the amount of stock he holds.
Define limited liability
limited liability provides protection to stockholders; if a corporation fails or declares bankruptcy, the individual stockholders do not personally have to pay the firm’s creditors
Define dividends
dividends - shares of a corporation’s profit
Describe common stock
> a way a person can invest in a corporation
holders of common stock can vote concerning corporate matters, such as who the officers of a corporation will be
in a prosperous year, holders of common stock may receive large dividends, but in a year when the company has not done well, dividends may be small or nonexistent
Describe preferred stock
> a way a person can invest in a corporation
holders of preferred stock are usually not permitted to vote at meetings of the company’s investors
holders of preferred stock annually receive a fixed amount in cash dividends if the company makes enough profit in a year to pay them
percentage of dividends for preferred stock is relatively small compared to potential of common stock, but advantage of owning preferred stock is that preferred stockholders are paid before common stockholders
Define and describe bond
> one of safest forms of investment, but one with less potential for high profits
bond - a document that guarantees the bondholder the amount of his original investment plus a specified rate of interest by a certain date
bondholder ordinarily has no say in management of the money he lends, but he is promised a fixed rate of interest on money
bondholder has right to be paid before preferred stockholders and common stockholders receive dividends
often the chief form of borrowing used by national, state, county, and city governments
Define and describe mutual funds
mutual funds - investment companies that combine the resources of all their shareholders and invest the money in a wide variety of areas
>advantage of mutual funds is that their assets are spread out so much that even if some of their investments do poorly, their investments that do well often more than make up the difference
Define liquid investments
liquid investments - assets that flow easily since they can be converted into other investments or cash without much time or difficulty
List the three key elements that determine how much your investment will grow
> time
rate of return
amount invested
of these three, time makes by far the biggest difference in how much your savings can grow
