Flashcards in Ch 9 Deck (37):
How is investment income taxed?
As normal income
Uncertainty caused by changes in the overall price level of goods and services.
Which assets are less susceptible to inflation risk?
Assets that emphasize capital appreciation. Ex. Stocks and real estate because their rate of return usually beats inflation.
Risk of loss caused by changes in the level of interest rates.
Interest rate risk.
What happened to bonds when the market interest rate increases?
Value of bonds decreases.
A stock that tends to pay high dividends which means mostly investment income.
Which bonds are more susceptible to interest rate risk?
Uncertainty about an investment's future value because of potential changes in the market
What kind of risk can be diversified away?
Risk that a company has taken on too much debt.
Dollar cost averaging for bonds where dates are staggered and maturing investments are reinvested.
Mutual fund dividend reinvestment option.
What is the tax treatment of reinvestment of dividends?
Dividends have to be reported. It's like getting the cash and manually investing it.
Bonds where interest isn't pad the tip redeemed.
EE or I
Treasury security with maturity of less than a year
Bond secured by the full faith and taxing authority of the issuer.
Bond that only pays after the collateralized debt has been satisfied.
Bond where owners only receive interest if the corporation has earnings from which the interest can be paid.
Stock where the company's earnings are growing at a faster rate than the general economy.
Stock considered undervalued since current price is less than the intrinsic value.
Stock with earnings that are closely correlated with the economic cycle.
Cyclical stock (ex. Automobile companies l)
Stocks that are less affected by the economic cycle (ex grocery stores, tobacco, medical companies)
Stocks with a record of steady dividend payments.
Stock with a price of less than $1/share.
Four systematic risks
Purchasing power risk
Interest rate risk
Exchange rate risk
What does it mean if a stock has a beta of 1? How about -1; +1
-1 = less risky than market
1= same as market
Mutual fund constantly issuing new shares. Outstanding shares are redeemed based on the current net asset value.
How do you calculate the by asset value of an open-end fund?
Assets - liabilities / number of shares
Mutual fund that sells a fixed number of shares.
Key advantage of mutual funds.
What do cds derive their return from?
Risk that a business may take on too much debt
What is the tax treatment of treasury notes?
Not taxed Federally or by the State.
Are sector funds diversified?
No; so they should only be a small portion of the portfolio
What does a beta less than 1 mean?
Returns are less than the market rate of return.
What happens with an asset-allocation or life-cycle fund?
The mix becomes less risky over time.