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personal finance chapter 14

Terms in this set (36)

pay off loans, have adequate liquidity
First priority of investing
certificates representing partial ownership of a firm. Stocks help companies raise funds and expand their business.
stocks
to make a return
why do investors invest in stocks
a market in which newly issued securities are traded
what are primary stocks
facilitates the trading of existing securities by enabling investors who wish to invest in that stock.
what are secondary stocks
The price of stocks in the secondary market changes each day as a result of supply and demand.
why does price of secondary market change every day
Institutional investors are professionals employed by a financial institution who are responsible for managing money on behalf of the clients they serve. Individual investors commonly invest a portion of the money earned from their jobs.
classify and describe two types of investors
individual investors who buy stocks and then sell them on the same day.
what are day traders?
if the price of a stock increases by the time they sell it.
how do shareholders warn returns from investing in stocks
is dependent on the number of investors who purchase a stock.
what determines the market price of a stock
tend to be higher, more established firms
what type of firm typically pays dividends
stocks that provide investors with periodic income in the form of large dividends.
what are growth stocks
stocks that provide investors with periodic income in the form of large dividends.
what are income stocks
a percentage of the profit a company makes that is distributed to their shareholders.
what are dividends
no
do all firms pay dividends
a certificate issued by a firm to raise funds that represents partial ownership in the firm.
what is common stock
a certificate issued by a firm to raise funds that entitles shareholders to first priority (ahead of common stockholders) to receive dividends.
what is preferred stock
long-term debt securities issued by government agencies or corporations.
what are bonds
make a return for whom bonds when it reaches maturity and they receive money for it.
how do bonds provide a return to investors
sell shares to individuals and invest the proceeds in a portfolio of investments such as bonds or stocks.
how do mutual funds operate
Experienced portfolio managers
who manages mutual funds
??
can investors incur capital losses with mutual funds
coast
in what geographic area is the price of land relatively high
is return (R)= percent change in the price (P) from the time the investment was purchased (time t-1) until the time at which is sold (time t).
what is the formula for estimating returns on dividend-paying stocks?
....
how do you calculate the dollar amount of your returns
Short-term returns are returns that have happened in a year or less and are classified as ordinary income. Long-term capital gains are taxed higher than short-term capital gains.
what is the difference in tax rates on long-term versus short-term capital gains
you gain returns from your investments
how can investments in stock increase your wealth
You can calculate the value of a stock over time by calculating your assumed rate of return
how would you calculate the value of a stock investment of a single sum over time
comes from the uncertainty surrounding its return.
define the risk of an investment
Stocks, mutual funds, and real estate are all uncertain.
what types of firms are particularly risky
to determine the degree of uncertainty surrounding their future returns
why do investors measure risk
Two common measures of an investment's risk are its range of returns and standard deviation of its returns
describe two common measure of risk
trade-off between potential return of an investment and risk. Many stock investors are interested in risky stocks because there is potential to make a lot of money.
what is the return-risk tradeoff
you are less likely to lose a large sum of money. When your money is spread out, it prevents you from relying on the success of one investment
how can you limit risk through diversification
making decisions based on unrealistic goals and taking more risk than you should, borrowing money to invest, and taking risks to recover losses.
describe common investment mistakes made by individuals
If the stock market crashes, stock prices will decline. If there is a recession people won't want to purchase homes or spend extra money on vacation rentals
describe how economic conditions might impact certain investments
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