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Personal Finance > Chapter 11: Investment Planning > Flashcards

Chapter 11: Investment Planning Flashcards

1
Q

long-term process of purchasing securities wherein stability of value and the level of return are somewhat predictable.

A

investing

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2
Q

short-term buying/selling of securities in which future value and expected return are highly uncertain.

A

speculating

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3
Q

you should establish and build up an emergency fund and buy insurance coverage before building up an investment portfolio.

A

true

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4
Q

money that is accumulated beyond basic emergency savings.

A

investment capital

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5
Q

in order to successfully invest:
1. determine amount to earn
2. determine time you have to earn
3. determine the expected rate of return

A

true

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6
Q

future amount of money desired / future value of annuity factor =

A

yearly savings

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7
Q

a set amount of periodic savings built into a budget.

A

systematic savings plan

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8
Q

a written statement explaining how to accumulated investment capital will be invested to reach a targeted goal.

A

investment plan

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9
Q
  1. enhance current income
  2. save for major expenditures
  3. retirement funds
  4. shelter from taxes

These are the 4 main objectives of…

A

investing.

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10
Q
  1. common stock
  2. bonds
  3. preferred securities
  4. convertible securities
  5. mutual fund
  6. exchange traded funds (ETFs)
  7. exchange traded notes (ETNs)
  8. real estate

These are all forms of…

A

investment vehicles.

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11
Q

investment vehicle where each share represents a fractional ownership position in a corporation of equity.

A

common stock

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12
Q

investment vehicle that is a liability of the issuer and has interest.

A

bonds

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13
Q

a stated return is also referred to as…

A

interest.

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14
Q

investment vehicle that is issued as stock, has a fixed dividend rate, and is purchased for the current dividends they pay.

A

preferred securities

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15
Q

investment vehicle that has a fixed-income obligation that carries conversion feature permitting investor to convert it into a specified number of shares of common stock.

A

convertible securities

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16
Q

investment vehicle where shares are sold to investors who become part-owners of the fund’s securities portfolio.

A

mutual fund

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17
Q

investment vehicle that represents a portfolio of securities and are set up to track a basket/index of securities of a sector.

A

exchange traded funds (ETFs)

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18
Q

investment vehicle where senior, unsecured, unsubordinated debt securities are issued by an underwriting bank.

A

exchange traded notes (ETNs)

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19
Q

investment vehicle that involves speculating in raw land to limited partnership shares in commercial property.

A

real estate

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20
Q

arena where stocks, bonds, and other financial instruments are traded.

A

securities markets

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21
Q

securities market where long-term securities are traded.

A

capital markets

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22
Q

securities market where short-term, low-risk credit instruments w/ maturities of 1 year or less are sold.

A

money markets

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23
Q

what are the 2 main types of securities markets?

A
  1. primary markets
  2. secondary markets
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24
Q

primary markets are used from newly issued investments.

A

true

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25
Q

type of firm that specializes in selling new security issues.

A

investment banking firm

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26
Q

a selling group is made up of several brokerage firms.

A

true

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27
Q

spreads risks associated with selling new securities.

A

underwriting syndicate

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28
Q

a document that describes a firm and an issue.

A

prospectus

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29
Q

secondary markets permit investors to execute transactions among themselves.

A

true

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30
Q

when buyers and sellers group together to trade securities, these are called…

A

securities exchanges

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31
Q

What does NASDAQ stand for?

A

National Association of Securities Dealers Automated Quotation System

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32
Q

What does OTC market deals stand for?

A

over-the-counter

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33
Q

what 2 types of markets constitute secondary markets?

A
  1. broker markets
  2. dealer markets
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34
Q

act that requires security issuer must file registration statement w/ the securities and exchange commission (SEC).

A

securities act of 1933

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35
Q

what is the name of the agency of the U.S. government that enforces federal securities laws?

A

Securities and Exchange Commission (SEC)

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36
Q

what act gives the SEC power to regulate organized securities exchanges and the OTC market?

A

Securities Exchange Act of 1934

37
Q

what act protects those purchasing mutual funds?

A

Investment Company Act of 1940

38
Q

what acts eliminates corporate fraud related to accounting and other info released to investors?

A

Sarbanes-Oxley Act of 2002

39
Q

what act improves accountability and transparency in U.S. financial system, discontinues the “too big to fail” regulatory approach, protects taxpayers from costly government bailouts, and protects consumers from exploitative financial services practices?

A

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

40
Q

what act provides trade associations for self-regulation within the securities industry?

A

Maloney Act of 1938

41
Q

what act created the Securities Investor Protection Corporation (SIPC)?

A

Securities Investor Protection Act of 1970

42
Q

what are the 2 different types of market conditions?

A
  1. bull markets
  2. bear markets
43
Q

do Bull or Bear markets have prices that go up?

A

bull markets

44
Q

doe bull or bear markets have prices that go down?

A

bear markets

45
Q

someone who buys and sell securities for their customers.

A

stockbrokers (account executives)

46
Q

what are the 3 types of stockbrokers?

A
  1. full-service broker
  2. discount broker
  3. online broker
47
Q

stockbroker that offers investment advice/information, trades, safekeeping for securities, online services, and margin loans.

A

full-service broker

48
Q

stockbrokers that have low-overhead operations, has fewer services, and initiates transactions over a call or online.

A

discount brokers

49
Q

stockbrokers who execute trades electronically.

A

online broker

50
Q

what are the 2 types of securities transactions?

A
  1. round lot
  2. odd lot
51
Q

odd lot securities transactions have less than 100 shares of stock.

A

true

52
Q

round lot securities transactions have 100 shares of stock of multiples thereof.

A

true

53
Q

what is the fee called when a transactions involves both an odd and round lot?

A

odd-lot differential

54
Q

what insurance covers up to $500,000 in a brokerage firm?

A

SIPC insurance

55
Q

the process whereby you and your banker present the 2 sides of the argument before a panel, which decides how the case is to be resolved.

A

arbitration

56
Q

what are the 3 types of securities orders?

A
  1. market order
  2. limit order
  3. stop-loss order
57
Q

securities order to buy or sell a security at the best price available at the time it’s placed.

A

market order

58
Q

securities order to buy or sell at a specified price.

A

limit order

59
Q

securities order to sell stock when the market price reaches or drops below a specified level.

A

stop-loss order

60
Q

the increase or decrease of the price of an investment and any income received over the investment period affect the rate of…

A

return.

61
Q

(ending value - beginning value + income) / beginning value =

A

rate of return on investment

62
Q

documents on information of the publicly traded company, like balance sheets, income statements, business activities, developments, future plans/outlooks, financial ratios, statistics.

A

annual stockholders’ reports

63
Q

averages and indexes that describe the general behavior of the securities markets and are based on price movements of select groups of securities over an extended period.

A

market data

64
Q

industry average, transportation average, utility average, and composite average all included to capture the overall market performance; also uses a price-weighted average.

A

Dow Jones Industrial Averages (DJIA)

65
Q

captures overall market performance, more stocks/representation, market value-weighted index.

A

Standard & Poor’s indexes (S&P)

66
Q

includes all stocks on the “big board” as well as a measure of the performance in that market.

A

NYSE index

67
Q

used as a benchmark in assessing the price behavior of high-tech stocks.

A

NASDAQ Composite

68
Q

reflects total market value of 98-99% of all publicly traded stocks in the U.S..

A

Dow Jones Wilshire 5000 Index

69
Q

tracks the performance of 2,000 small companies and is a fairly accurate measure of the small-cap segment of the market.

A

Russell 2000

70
Q

newspapers and magazines that include data, descriptions, statistics, indexes of industry performance, and price levels.

A

industry data

71
Q

stock price quotes exists.

A

true

72
Q

services that provide information and recommendations on various industries and specific securities.

A

subscription advisory services

73
Q

the basic rules for smart investing is to:
1. know what you’re buying
2. from whom
3. at what level of risk

A

true

74
Q
  1. investor education sites
  2. investment tools
  3. investment planning
  4. investment research and screening
  5. portfolio tracking tools

These are?

A

investment services

75
Q

a collection of investments assembled to meet a common investment goal.

A

portfolio

76
Q

combining securities w/ dissimilar risk-return characteristics can produce a portfolio of reduced risk and more predictable levels of return. This is called…

A

diversification.

77
Q

an investor’s exposure to risk shouldn’t exceed the capacity to bear that risk.

A

true

78
Q

a plan of how to divide a portfolio among different types of securities.

A

asset allocation strategy

79
Q

monitor a portfolio by keeping track of investment holdings, their performance, and whether they’ve lived up to expectations.

A

true

80
Q

the owner of a bond would expect to receive a steady annual income.

A

true

81
Q

instructing your broker to buy/sell a stock at a particular price is a limit order.

A

true

82
Q

you have been offered an opportunity to buy shares of a collection of diversified securities. This is an investment in a mutual…

A

fund.

83
Q

discount brokers will charge low commissions.

A

true

84
Q

a bull market is characterized by investor optimism.

A

true

85
Q

an annual stockholders’ report provides financial and descriptive information about a firm’s operations in the recent past to the internal and external interested parties.

A

true

86
Q

the first thing you need to determine in order to reach an investment goal after accumulating the capital is the rate…

A

of return.

87
Q

who handles the sales of new securities in primary markets?

A

investment bankers

88
Q

Standard & Poor’s index is based on how many stocks?

A

500

89
Q

is Clara’s portfolio is worth $200,000 and she has $56,000 worth of common stocks, the equity constitutes how much of her portfolio?

A

28% (56,000/200,000)

Personal Finance (9 decks)

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