Personal Finance 2
Terms in this set (23)
What is the difference between traditional IRA and Roth IRA?
Traditional is taxed when money is pulled out of retirement plans.
Roth IRA grows tax free
What are the three most criteria to consider when investing?
Liquidity, Risk, Return
What is the general relationship between risk and reward?
Higher the risk, higher the return.
Define Capital Gains
Selling an asset for more than you paid for it.
Define Capital Loss
Selling an asset for less than you paid for it.
Understand the relationship between risk and diversification.
Diversification can help lower the risk because money is invested in a variety of investment tools
Shares of ownership in a company
Per stock payments to stockholders from corporation profits
Type of debt investment that a company/government issues to investors for a specified period of time.
When referring to investments, what does maturity mean?
The point at which the amount paid for the bond is returned to the bondholder.
A rise in the general level of prices
Explain bull market
Raising stock prices and investors confidence in their financial future
What is compound interest?
Previous made interest can earn interest
How are the prices for stocks and bonds determined?
By the laws of supply and demand
What is the difference in corporate and government/municipal bond?
Corporate bonds are distributed by private companies whereas government bonds are distributed by states and cities.
What is simple interest?
Interest paid only on principle
What information does the 52 week High and Low sections from a stock table provide?
The highest and lowest prices the stock was sold at during the last 52 weeks.
Why does the average investor invest in mutual funds?
Because they are diverse and professionally managed.
Explain the Cardinal Rule of personal finance-(pay yourself first).
Money should be set aside for saving/ investing purposes, but you start to spend.
How quickly and easily an asset can be converted into cash.
Rank the order of liquidity of the following: real estate, stocks, savings account.
Most liquid-savings account
What is a certificate of deposit (CD)?
Depositing money into a CD for a specific length of time.
What is the purpose of the Securities and Exchange Commission (SEC)?
They make sure that the companies issuing stock to the public prices accurate information to investors.
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