Personal Finance Final

Front 1

zero coupon bonds

Back 1

buy bond at discount and paid full value at maturity, no interest
ie. t-bills

Front 2

Call provision, callable vs not

Back 2

could be redeemed or called before maturity date, co. can refinance debt, riskier higher yield

Front 3

secured vs. unsecured

Back 3

specified asset you receive if co. defaults

vs. debentures, no asset, higher yield, increased risk

Front 4

par value

Back 4

listed on bond, value of bond when issued and when matured, usually $1000

Front 5

If interest rates decrease your bond's present value _________

Back 5

increases

Front 6

equivalent taxable yield, why important and formula

Back 6

muni bonds are tax-exempt

interest yield/(1-investors marginal tax bracket)

Front 7

rate of return equation

Back 7

(ending value -beginning value) +income return all over beginning value

Front 8

annualized rate of return equation

Back 8

(ending value-beginning value) + income return all over beginning value x 1/n

Front 9

liquidity risk

Back 9

risk when you can't liquidate security fast enough or at a fair market price

Front 10

market risk

Back 10

risk with overall market movements. bull market (all stocks move up) and bear markets (all move down)

Front 11

financial risk

Back 11

risk associated with companies use of debt, could default or stock drops in price

Front 12

systematic risk aka

Back 12

aka market-related or nondiversifiable risk, results from factors affecting all securities

Front 13

unsystematic risk aka

Back 13

aka firm-specific, company-unique, diversifiable risk

Front 14

constant growth model for stocks/company

Back 14

stock price= (next years earnings/profits)/(i-g)

Front 15

call

Back 15

right to buy 100 shares of something at a specific price in less than or = to 9 months, do if the price is going up

Front 16

put

Back 16

right to sell 100 shares of something at a specific price in less than or = to 9 months, do if you think prices are going down

Front 17

to short sell how much money do you need in your account

Back 17

half

Front 18

vested

Back 18

worked long enough for that company to receive pension benefits

Front 19

defined benefit plan

Back 19

burden on employer, you pay nothing into plan, non contributory retirement plan
usually: avg pay x number of years of work x .015

Front 20

defined contribution plan
example

Back 20

you pay into plan, often employer has a matching rate
401(k) (same as 403(b))- medium and large companies, can contribute %age of salary

Front 21

When can you take your $ out of a 401k

Back 21

59.5 years no penalty BUT taxed at normal rates
required min. distribution- have to pull out certain $ by age 70.5 or penalized 50%

Front 22

IRA

Back 22

individual retirement account (80s), limits are small (5k this year), penalties if you take out before 59.5, can have this and a 401(k)

Front 23

Roth IRA

Back 23

5k year, no required min distribution(can stay in forever), investment growth not taxed, can take out with no penalty for permanent disability or 1st home

can't have if you make over $120k, married no if you make over $176k

Front 24

Simple IRA

Back 24

max $11,500 pre-tax income or 100% of income, for separate jobs

Front 25

Keogh Plann

Back 25

SEP/simplified employed pension, 25% of compensation limited up to $245k/year for self employed,

Front 26

section 72(t) plan

Back 26

desperation, if you don't want the 10% penalty for dipping b4 59.5, you can take out exactly $10,000 (or account value/life expectancy) ea year without penalty

Front 27

NAV

Back 27

net asset value = (total market value of all securities-liabilities)/total shares outstanding

Front 28

class A shares

Back 28

have front end load or fee paid

Front 29

class B shares

Back 29

back end load (commission paid when you leave, more risk, they can increase the management fee)

Front 30

open end fund

Back 30

issue as many shares as they need to (vs closed end fund)

Front 31

prospectus

Back 31

doc for potential investors, fees and managaer

Front 32

Aggressive growth fund

Back 32

small co. that grow fast (20-30%/year)

Front 33

Growth and Income fund

Back 33

buy growing companies and ones that pay dividends

Front 34

Balanced Fund

Back 34

don't have all money in the stock market

Front 35

Sector fund

Back 35

buy cos in the same sector, not diversified

Front 36

Index fund

Back 36

S & P 500, "the market" only pay tax when you leave market, representative of US economy

Front 37

Global mutual fund

Back 37

invest in any co. on earth, typically . 70% US companies

Front 38

Bond mutual fund

Back 38

bond diversification, muni/gov, corp bonds

Front 39

blue chip stock

Back 39

big, profitable stable, pays good dividends

Front 40

Growth stock

Back 40

co. growing rapidly, smaller, no dividends, use money extend co.

Front 41

Income stocks

Back 41

utilities, monopolies w increased gov regulation, pays most profit out as dividentds

Front 42

Small cap company

Back 42

new, supergrowth, can be speculative

Front 43

Cyclical company, vs.

Back 43

ride economy's cycle, FORD vs. Counter cyclical stock, fix cars

Front 44

defensive stock

Back 44

stuff that everyone has to have, regardless of the market

Front 45

Investment styles: 1 & 2

Back 45

Growth style- continue to buy as long as it looks good
Value Style- cheap, buy if less than they think it's worth

Front 46

Fundamental analyst

Back 46

predict future sales, costs, profits, PV of future profits

Front 47

How much should one share cost

Back 47

PV of future sales divided by number of shares

Front 48

Price/Earnings ratio

Back 48

measure of a stocks relative value, = price per share/earnings per share

Front 49

Dividend yield ratio

Back 49

(dividend/share)/(price/share) = rate of return and d.y. ratio

Front 50

common stock

Back 50

primarily interested in capital gains

Front 51

preferred stock

Back 51

primarily interested in dividends