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Chapter 9: Investment Basics
Terms in this set (22)
__________ risk is the only risk that matters to investors with broadly diversified portfolios.
If Microsoft sells a bond with a face value of $10,000 and agrees to pay $800 of interest per year to the bond purchasers, what is the interest rate paid on the bond?
Interest payments made on a bond are known as:
Coupon payments are interest payments remitted to bondholders, typically every six months, that provide income to the bondholders
Diversification is the process of:
combining assets to reduce risk and/or increase returns.
Financial planners suggest making retirement investments on a __________ basis.
Using legal provisions in the tax code to tax-defer investments allows the investment to grow tax-free until you begin withdrawals.
A stock's holding period return represents:
the total return earned over a specific period through buying and selling an asset.
A type of brokerage account that allows you to borrow money from the broker to invest in stocks is called a:
Investors resell existing stocks to each other in what type of market?
All outstanding debt and equity trades among investors in the secondary markets.
Which of the following would be the best example of systematic risk?
The Federal Reserve tightens the money supply to fight inflation which causes the interest rates to rise.
Which of these is a derivative security?
If Motorola sells a bond with a face value of $5,000 and an interest rate of 5 percent, what is the coupon payment on the bond?
Payments made by a corporation to the shareholders are known as:
Which of the following is the best description of systematic risk?
Any risk that will impact the value of all assets simultaneously;
Examples of systematic risk include recessions and changes in fiscal policy or monetary policy that impact all firms in some manner.
Investors have a tendency to notice overall market trends and take a position designed to follow the market trend. This type of behavior is known as:
You purchased Hobo Hats stock last year for $60 a share. Today, you received $2 a share dividend and immediately sold the stock for $63. Your realized return, or holding period return, was _________.
A person with a very short-term time horizon may buy and sell stocks based purely on price trends with the expectation of reversing the position within hours or days. This practice is known as:
When Mark Zuckerburg, the owner and founder of Facebook, decided to allow public ownership of his company the stock offering occurred in the __________.
Issuers sell new financial claims to investors in the primary markets.
Market risk can also be called:
An order to purchase 100 shares of IBM stock at the prevailing price is called a:
Purchasing an asset with the expectation that it will generate a return is known as:
Issuers sell new financial claims to investors in the __________.
Which of the following is the most important of the over-the-counter markets?
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