Classwork 11.1-11.2.1

I want to invest with LITTLE risk. Place a check by each investment that has LITTLE risk.

• Opening a savings account

• Buying stock

• Buying a certificate of deposit

• Buying a life insurance policy

• Contributing to a finance company

True or False: It is advisable to contribute to your financial accounts consistently, over a long period of time.

• true

• false

Identify which financial intermediary each statement describes

• credit union

• This fund collects and invests income for later payments to eligible recipients.  

• life insurance policy

• You pay periodic premiums into this account, and after death, money is transferred to a beneficiary.  

• pension fund

• This financial organization is a nonprofit service cooperative.  

An investor would make a risky investment if he/she expects ______________ (higher/lower) compensation.

• higher

• lower

It is advised to (a)   your portfolio, which means holding different kinds of investments to minimize risk.

The below statements describe a type of financial asset.

• par value

• A _______________________ is a contract to repay borrowed money and interest on borrowed money at regular future intervals.

• maturity

• If a bond has a 30-year ________________________, then the issuer of the bond has 30 years to repay it.

• coupon rate

• Bonds are usually repaid how many times a year? __________________

• bond

• The ______________________  ____________________ is the rate of interest that is paid on the par value of a bond.

• twice

• The principal of a bond or total amount borrowed is known as the __________________ 

One of the below statements describes a bond with a AAA rating, and one describes a bond with a BBB rating. One statement does not describe a bond at all.

• AAA

• A bond that sells for $900 with a current yield of 8%.  ______________

• stock

• A bond that sells for $1,500 with a current yield of 6%.  _____________

• BBB

• Owning equity in a company

Match the following

• EE savings bond

• 1.     I am interested in buying the highest risk bond with the lowest bond rating. I am hoping that buying this bond will result in a high yield.

• CD

• A grandparent wants to open up an investment account for his/her grandchild. This type of bond is low-denomination, nontransferable, and often used by grandparents because they can designate a beneficiary of the money if they die.

• municipal bond

• 1.     I am interested in investing a small amount with my bank, where I can set my own length of maturity, tailored to my needs. I plan on attending college in four years, so I will set the length of maturity at four years. There is no risk in this investment.

• junk bond

• 1.     I want to buy a bond that is extremely safe, issued by my local government, and is tax-exempt. I want to contribute to my community, as the money will be used pay for public works and civic improvements.

What two investments are at opposite ends of the risk spectrum? (ie one is very safe, one is very risky)

• treasury notes and stocks

• savings bonds and treasury notes

• junk bonds and stocks

• CDs and EE savings bonds