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Investing Basics
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Key Concepts:
Terms in this set (13)
principal
The amount of money borrowed or invested initially
APY
Annual Percentage Yield describes interest paid to a saving account or certificate of deposit
simple interest
Interest earned only on the original principal amount invested
compound interest
interest earned on both the principal amount and any interest already earned
inflation
a general increase in prices and fall in the purchasing value of money.
return
the money an investor receives above and beyond the sum of money initially invested
risk
Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit.
risk tolerance
The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.
risk pyramid
A heirarchy of investment tools organized by level of risk. Bonds are low risk, speculative investments are at the top.
rule of 72
a technique for estimating the number of years required to double your money at a given rate of return
Volatility
Indicates how much and how quickly the value of an investment, market, or market sector changes.
appreciation
an increase in value
depreciation
A decrease or loss in value
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