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

• pension fund

• This financial organization is a nonprofit service cooperative.  

• 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.  

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

• higher

• lower

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

The below statements describe a type of financial asset.

• twice

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

• maturity

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

• bond

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

• par value

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

• coupon rate

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

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 $1,500 with a current yield of 6%.  _____________

• stock

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

• BBB

• Owning equity in a company

Match the following

• EE savings 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.

• 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.

• CD

• 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.

• junk bond

• 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.

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