Personal Financial Management - ch 2

Question 0

Diversification (2)

Answer 0

To spread around one’s investment dollars among several different classes of financial assets

Results in lowering the risk

Question 1

Which record do you check when investing?

Answer 1

5-10 year track record

Question 2

Share (2)

Answer 2

Piece of ownership in a company or a mutual fund

NOT an annuity

Question 3

Portfolio

Answer 3

List of your investments

Question 4

Rental real estate (3)

Answer 4

Buying real estate to rent out as an investment

Least liquid of all investments

Should have lots of cash before using real estate as an investment

Question 5

Risk (2)

Answer 5

degree of uncertainty of the return on an investment

In business, the likelihood of loss or reduced profit

Question 6

Small-cap fund (3)

Answer 6

Mutual fund that invests in companies whose market value is less than $1 billion

Largely consists of smaller, more volatile companies

Also called aggressive growth stock mutual fund

Question 7

Annuity (2)

Answer 7

Contract sold by an insurance company, designed to provide payments to the holder at specified intervals, usually after retirement –> its a savings account with an insurance company

Holder is taxed at the time of distribution or withdrawal –> tax-deferred agreement

Question 8

Risk return ratio (2)

Answer 8

Relationship of substantial reward in comparison to the amount of risk taken

As risk goes up, return goes up

Question 9

Best place for emergency fund

Answer 9

Money market account

Question 10

Commodities and futures are

Answer 10

Extremely speculative and carry a high risk

Question 11

What % of any 10 year period in the stock market has made money?

Answer 11

100%

Question 12

Long term investments properly diversified include what mutual funds? (4)

Answer 12

Growth

Growth and income

International

Aggressive growth

Question 13

Liquidity (4)

Answer 13

Quality of an asset that permits it to be converted quickly into cash without loss of value

Availability of money

More liquidity = less return

With investments, liquidity = availability

Question 14

What are the types of annuities? (2)

Answer 14

Variable

Fixed

Question 15

What is a C.D.? (2)

Answer 15

Certificate of deposit - usually at a bank

Savings account with a slightly higher interest rate because of a longer savings commitment (i.e. 6 months, 1 year)

Question 16

Why do you look at the long term track record with a mutual fund?

Answer 16

To make sure it’s safe and reliable

Question 17

What are some investments that don’t give you a high rate of return? (3)

Answer 17

Single stocks

C.D.s

Bonds

Question 18

List four types of investments that you should always avoid: (4)

Answer 18

Day trading

Commodities

Goals

Futures

Question 19

What type of annuity should you invest in?

Answer 19

A variable annuity

Question 20

KISS

Answer 20

Keep it simple stupid

Question 21

Never invest purely for

Answer 21

Tax savings

Question 22

Never invest using

Answer 22

Borrowed money

Question 23

Money market (4)

Answer 23

Mutual fund that seeks to maintain a stable share price and to earn current income by investing in interest-bearing instruments with short-term (usually 90 days or less) maturities

Carries a low-risk

Great for emergency fund

Has check writing privileges

Question 24

Single stock (3)

Answer 24

High risk Buying stock = Ownership of company Return comes as company increases in value or pays you dividends (profits)

Question 25

Bonds (3)

Answer 25

Debt instrument where an issuer such as a corporation municipality or government agency owes you money Form of I.O.U. Issuer makes regular interest payments on the bond and promises to pay back the money at a specified point in the future (maturity date)

Question 26

Mutual funds (5)

Answer 26

Pool of money managed by an investment company and invested in multiple companies, bonds, etc. Offers investors a variety of goals depending on the fund and its investment charter Often used to guarantee income on a regular basis or to preserve an investor's money Sometimes used to invest in companies that are growing at a rapid pace Good long-term investments

Question 27

Pie chart

Answer 27

25% small cap, large cap, mild cap, and international

Question 28

5 years or more

Answer 28

Investment

Question 29

Less than 5 years

Answer 29

Savings

Question 30

Aggressive growth stock mutual fund (4)

Answer 30

Mutual fund that seeks to provide a maximum long-term capital growth from stocks of primarily smaller companies or narrow market segments Dividend income = incidental Most volatile fund Small-cap fund

Question 31

Dividend (2)

Answer 31

Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders Generally distributed in the form of cash or stock

Question 32

Fixed annuity (4)

Answer 32

Type of annuity that guarantees a certain rate of return Low interest rate of around 5% Not really fixed Bad investment

Question 33

Futures

Answer 33

Term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery of a commodity exchange

Question 34

Investments (2)

Answer 34

Account or arrangement in which one would put their money for a long-term growth Also called a portfolio manager or a money manager

Question 35

Growth stock mutual fund (2)

Answer 35

Fund that buys stock in medium-sized companies that have experienced some growth and are still expanding Called mid-cap funds

Question 36

Large-cap fund (2)

Answer 36

Funds comprised of large, well-established companies Growth and income funds

Question 37

Mid-cap fund

Answer 37

Mutual fund containing a groups of medium-sized companies that are growing

Question 38

International stock mutual fund

Answer 38

Mutual fund that contains international or overseas companies

Question 39

Savings account (2)

Answer 39

Accounts at financial institutions that allow regular deposits and withdrawals Minimum required deposit, fees charged, and the interest rate paid varies among providers

Question 40

Speculative

Answer 40

️purchasing risky investments that present the possibility of large profits, but also pose a higher-than-average possibility of loss

Question 41

Track record (2)

Answer 41

The past history of something Look at 5-10 year track record for investments

Question 42

Variable annuity (2)

Answer 42

Annuity that has a varying rate of return based on the mutual funds in which one has invested Grows tax-deferred

Question 43

Commodity What's an example? (2)

Answer 43

A food, metal, or fixed physical substance that investors buy or sell, usually via future contracts Oil and gold