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Financial Stewardship FINAL Flashcards

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1
Q

T/F A dollar today is worth more than a dollar received at some point in the future because of inflation

A

T

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2
Q

How much does money decrease per year/what is the rate of inflation

A

4%

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3
Q

a type of debt that a company issues to investors for a specified amount of time

A

Bond

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4
Q

a general term used to describe all transactions involving the buying and selling of stocks and bonds issued by a company

A

Stock market

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5
Q

Why do companies issue stocks?

A

To raise funds and pay for ongoing business activities and grow

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6
Q

distributions of earnings paid to stockholders

A

Dividends

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7
Q

increase or decrease in the original purchase price of an investment

A

rate of return

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8
Q

T/F The higher the rate of return, the greater the risk

A

T

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9
Q

when money is invested in a variety of investment tools

A

portfolio diversification

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10
Q

2 types of stock

A

common: shares of ownership in a public corporation, most common type
preferred: shares which pay fixed dividends and have priority over common stock, usually people who founded the company(less risky)

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11
Q

occurs when shares owned by existing stockholders are divided into a larger number of shares

A

Stock split

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12
Q

Ways stock value can change

A

dollar value increases or decreases
stock split
merger of 2 companies
dividends paid

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13
Q

how are dividends stated?

A

a percentage known as the par value

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14
Q

fixed value stated on a stock certificate

A

par value

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15
Q

7 classifications of stock

A

growth, income, value, cyclical, countercyclical, speculative, blue chip

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16
Q

T/F stocks can be classified into one or more category of stocks

A

T

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17
Q

stocks from companies who have had a consistent record of relatively rapid growth and earnings, usually don’t pay dividends, ex. coke and wal-mart

A

Growth Stocks

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18
Q

stocks that pay higher than average dividends; company only retains small portion of profits, used by utility companies

A

Income Stock

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19
Q

stocks from companies with a lower market price considering historical earning records and value of assets ; “investment bargains” ex. IBM

A

Value Stocks

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20
Q

stocks influenced by changes in the economic business cycle; companies in consumer dependent industries (ex. automobiles, housing)

A

Cyclical Stock

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21
Q

stocks where companies give consistent returns even when suffering; products always in demand, good for dividends, ex. utilities and grocery stores

A

Countercyclical Stocks

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22
Q

Stock companies with potential substantial earnings; very high risk stocks, ex. internet and video game companies

A

speculative stocks

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23
Q

stocks from nationally recognized companies with long records of profit, dividend payments, and good reputation for management, less risky, grow at consistent rate, ex. mcdonalds, walmart

A

Blue-Chip Stocks

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24
Q

Net worth of a company and how to calculate it

A

Book Value
Assets - Liabilities = Book Value
(can be found on annual report)

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25
how much income a company has available to pay in dividends and reinvest as retained earnings on a per share basis ("earnings per share")
after tax annual earnings/total number of shares of common stock = earnings per share indicates how well a company is doing when compared over time
26
the relationship between the price of one share of stock and the annual earnings of a company
price/earnings ratio | price per share/ earnings per share of stock = P/E ratio
27
Represents how much an investor is willing to pay for each dollar of a company's earnings
P/E ratio
28
Indicates how well a company is doing when compared over time
Earnings per share
29
Indicates what would happen if a company' assets were sold, debts paid, and proceeds distributed to stockholders
Book value
30
answers how long it will take to double money in stock market
Rule of 72
31
What is the Rule of 72
72/annual rate of return | ex. 72/12% = 6 years
32
About how many years should you plan to invest to get a good return on your money
5+
33
2 factors that effect how much people need to save/invest
interest rate | time
34
series of equal dollar payments coming at the end of a time period for a specified amount
annuities | ex. you have 350k, you get 2000 monthly
35
who typically likes annuities
older people
36
Pros/Cons of annuities
Pros: guaranteed your payment for as long as you live Con: if you die early, your leftover money goes to the bank
37
the #1 place people put their money
Annuities
38
money sum invested at the end of a time period for specified number to allow it to grow, bank gets extra money
Compound Annuity
39
T/F Annuities are good places to put your money
F
40
3 ratios we talked about
1. Month's Living Expense Ratio 2. Debt Ratio 3. Current Ratio
41
ratio based on cash available to you (how many months you can survive before bankruptcy)
Month's Living Expense Ratio
42
How to calculate Month's Living Expense Ratio
current assets/ (annual living expenditures/12) = MLE
43
tells you for every dollar of owned asset how much is funded by debt and how to calculate
Debt Ratio | total liabilities/total assets
44
T/F The lower your debt ratio the better
T (0 debt ratio is good)
45
Shows how much money you have to pay towards emergencies and how to calculate it
Current Ratio Current assets/current liabilities ex. a ratio of 4/1 is good because you have $4 for every $1 of debt
46
T/F The lower your current ratio the better
F, the higher your current ratio the better; it should be higher than 1
47
principle the stock market operates on
supply and demand
48
core of America's economic system
stock market
49
2 types of companies and their differences
Growth company: doesn't pay dividends, only make money off of it when you sell it Income company: pays dividends
50
What is the rate of return on stocks
12% per year
51
How money goes out when a co. goes bankrupt
Bond holders --> preferred holders --> common holders
52
stock trading below its worth
Value stock
53
says everything known about a company in any point in time is currently reflected in the stock price
Efficient Market Theory
54
2 ways to measure stocks
SPY --> NYSE (older, bigger companies) | QQQ --> NASDAQ (newer companies)
55
company must have a billion dollars in assets to be considered this type of stock
blue chip stocks
56
examples of this stock include stamp trading and rare coins
speculative
57
T/F Liability automobile insurance is required in TN and covers up to 200k
F, it is required but it usually only covers up to 100k
58
Type of car insurance that covers another 300k past liability insurance
Collision Comprehensive
59
how many hours does it take to get money out of the market/reverse a sale of stocks
24
60
5 elements of financial education according to Robert Kiowaski
``` history taxes financial vocab wealth protection 2 sides to every coin ```
61
Robert Kiowaski's book
Rich Dad, Poor Dad
62
Robert Kiowaski's sacred cows
``` Going to School Getting a job Work Hard Save Money Your House is an Asset Get out of debt Live below your means ```
63
T/F According to Dr. Burch, your house is an asset
T
64
Current rate of return for money under mattress
0%
65
Current rate of return for government savings bonds/T-Bill
.13-1.4%
66
Current rate of return for savings/chccking account
.45-.48%
67
Current rate of return for certificate of deposit (CD)
.79-1.45%
68
Current rate of return for corporate bonds
5.7%
69
Current rate of return for large cap stocks
9.8%
70
Current rate of return for small cap stocks
11.9%
71
Current rate of return for gold
depends
72
These 4 investments would currently cause you to lose money because their rate of return is below inflation rates
Money under mattress Gov. Savings bonds/T-Bills Savings/Checking Accounts CDs (Certificates of Deposit)
73
5 things to know when researching stocks
``` Company fundamentals News Ratings and Analysis Insider Action Financials ```
74
If you don't have a will who gets to decide where your money goes?
Probate judge
75
T/F In TN, if you die, everything goes to your spouse
T
76
About how much does it cost for a good will?
between $1200-1500
77
The term used for when someone is disabled you taking the responsibility for them (ex. paying their bills using their accounts, calling the cable company when necessary)
Power of Attorney
78
T/F The more time you have to invest, the less risk you have
T
79
Risk Vs. Return chart
``` Small stocks (12%) Large Stocks (10%) Gov. Bonds (6%) Treasury Bills (4%) Go from more risky to less risky ```
80
How much money should you put as a down payment for a house
20%+
81
what is considered an affordable home
when housing expenses do not exceed 40% of gross income
82
ARM =
adjustable rate mortgage
83
3 people who can receive your estate
heris non-profit gov.

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