Investing - correct answer. 5-40 years, not as liquid, higher possible interest rate,
higher risk of losing money, increase net worth, need money to get started
Return - correct answer. The profit or income generated from your investment. Also
known as Reward.
Risk - correct answer. The chance at loss
Investment risk - correct answer. The possibility that the investment will fail
Rate of Return - correct answer. Return/Principal; the interest rate of your return on
the investment
Inflation - correct answer. The general rise of prices over time
Inflation Risk - correct answer. The danger that your money won't be worth as much in
the future.
Real Rate of Return - correct answer. Rate of Return - Inflation
Time Value of Money - correct answer. This is the idea that your money is worth less
in the future than now because of the potential for interest from investing.
, Risk vs. Reward - correct answer. The higher the risk, the higher the potential for
either making or losing money; the lower the risk, the lower the potential for either
making or losing money
Speculative Investments - correct answer. Investments that are very risky
Securities - correct answer. Any type of investment. Could be debt securities, equity
securities, and derivative securities.
Stock - correct answer. Ownership of a share of a company.
Dividends - correct answer. A portion of the profits which is shared with the
stockholders.
Capital Gains - correct answer. The money you earn from selling stock or dividends.
Also called Unearned Income. You have to pay tax on it.
Risk pyramid - correct answer. A heirarchy of investment tools organized by level of
risk. Bonds are low risk, speculative investments are at the top.
Bond - correct answer. An investment tool where a company or government issues
debt to investors.
Corporate bond - correct answer. A corporation's written pledge to repay a specified
amount of money with interest.
Maturity date - correct answer. The exact date the issuer of a bond must pay the
principal to the bondholder. This term is one of the characteristics of corporate bonds
Face value - correct answer. The dollar amount that the bondholder will receive at the
bond's maturity date; it is usually $1,000. This term is one of the characteristics of
corporate bonds
Coupon Rate - correct answer. The interest rate that is paid out every six months on
bonds.
Reasons why corporations issue bonds (Objective 2) - correct answer. • To get funds
for a corporation's major Purchases • To get ongoing Business Activities • When it is
Difficult or impossible for a corporation to Sell Stock • To improve a corporation's
financial Leverage • Interest paid to bondholders is a Tax Deductible business expense
that can be used to reduce the federal and state taxes corporations must pay (Note: a
bondholder purchasing bonds is NOT a tax deductible activity)
Government bonds - correct answer. This type of bond is sold in order to obtain
money to finance the national debt and the general ongoing costs of government.
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