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WorksheetsFIN310 Final
Total questions: 67
Worksheet time: 39mins
Classification of Stocks:
Blue-chip
Speculative
Growth
Decline
Investment Choices:
Lending investments
Ownership investments
Stock investments
Savings investments
Lending Investments
Savings accounts and bonds that are debt instruments issued by corporations and the government
Preferred stocks and common stocks that represent ownership in a corporation, along with income-producing real estate
Ownership Investments
Preferred stocks and common stocks that represent ownership in a corporation, along with income-producing real estate
Savings accounts and bonds that are debt instruments issued by corporations and the government
Income return:
Payments you receive directly from the company or organization in which you’ve invested
The money earned from the number of hours worked in a week
Lending Investments:
Maturity date
Per value or principal
Coupon interest rate
Real estate
Ownership Investments:
Real estate - your home, rental apartments and
investments in income-producing property
Illiquid - hard to sell off
Stock- fractional ownership in a corporation
Owner or equity holder - owns stock
Dividend - a payment by a corporation to its
shareholders
What is a PMI (Private Mortgage Insurance)?
What is a Balance Sheet?
What are possible retirement income sources?
Pension, 401(k), Social Security, earnings
Possible returns from stock investment finance
Dividends and capital appreciation
Dividends:
Capital appreciation:
Risk-return trade-offs
The higher the risk, the higher the potential reward
The higher the risk, the lower the potential reward
The lower the risk, the higher the potential reward
What is the Social Security system in the United State
It is funded by employees and employers
FICA; taxes paid for today are providing benefits for many senior citizens
Calculating returns on an investment:
Rate of return: (ending value - beginning value) + income return/beginning value
Annual average rate of return: (ending value - beginning value) + income return/beginning value * 1/N
Quantum Yield Formula: (ending value beginning value)/(income return + 42) - N (beginning value^2)
Crypto-Collateralized Return: (2 ending value - beginning value) (income return + 0.01)/(beginning value + 1) * N
Primary Markets
Market where newly issued securities are traded
Markets where previously issued securities are traded
Secondary Markets - Stocks
Market where newly issued securities are traded
Markets where previously issued securities are traded
What is the relation between stocks and interest rates?
Directly related - Interest rates rise, socks rise
Inversely related - Interest rates rise, stocks fall
Only related during a recession - Interest rates fall, stocks fall
What are Securities Markets?
What are securities?
Stock split:
A stock split is when a company stops trading its shares to decrease liquidity
How do you calculate the EPS (earnings per share)
What is the total return on stock investment?
Risk and return on bonds and stocks
Bonds generally provide higher returns with higher risk than savings, and lower returns than stocks
The more risk you assume, the greater the
potential reward
28/36 rule
28% of gross monthly income on total housing expenses; no more than 36% on total debt service
What is a Flexible Spending Account (FSA)
What do all the dollar amounts on your auto insurance policy mean?
What are efficient markets?
Information about the
stock is reflected in the stock price
Stock Market Index
Measure of performance of
a group of stocks that represent the market or a
sector of the market
What are the Stock Market Indexes
Dynamic Wealth Dowry Gauge (DWG) Average
Premium & Prosperity Index (PPI) 500
Standard & Poor’s 500 (S&P 500)
Dow Jones Industrial Average (DJIA) or Dow
What is the relationship between bonds value and interest rates
What is the value of bonds
Present value of interest payments + Present value of repayment of par at maturity
Diversification
Diversifying away Risk
Systematic or market related or nondiversifiable
risk is the portion of a security’s risk or variability
that cannot be eliminated through diversification
Unsystematic or firm-specific or company-unique risk or diversifiable risk is the risk or variability that can be eliminated with diversification
Roth IRA
After tax money, the return you receive is tax free
Money is before tax (you defer the taxes and the money you receive is taxed)
Traditional IRA
Money is before tax (you defer the taxes and the money you receive is taxed)
After tax money, the return you receive is tax free
Roth IRA
Contributions are not tax deductible but made out of after-tax income
Money grows tax free and withdrawals are tax free
No withdrawal restrictions or tax penalty imposed like traditional IRA but can also rollover
Saver's tax credi
Traditional IRA
Restrictions are placed on timing and amount of withdrawals but can rollover a distribution
Saver's tax credit
Contributions are not tax deductible but made out of after-tax income
Money grows tax free and withdrawals are tax free
What are the advantages of a 401K retirement plan
What are the restrictions of a 401K retirement plan
What is a 401K retirement plan
What is an income statement
What are possible returns from investing mutual fund
Calculating Mutual Fund Costs and Returns
Commissions when you buy or sell your holdings
Annual management fee
Marketing expenses
Advantages of mutual funds
- Diversification
– Professional management
– Minimal transaction costs
– Liquidity
– Flexibility
– Service
– Avoidance of bad brokers
– Lower-than-market performance
– Costs
– Risks
– You can’t diversity away a market crash
– Taxes
Disadvantages of mutual funds
- Diversification
– Professional management
– Minimal transaction costs
– Liquidity
– Flexibility
– Service
– Avoidance of bad brokers
– Lower-than-market performance
– Costs
– Risks
– You can’t diversity away a market crash
– Taxes
Assets Allocation Strategy - where you decide to put your money
How your money should be divided among stocks, bonds, and other investments
Investments diversified in different classes of investments
Common stocks are more appropriate for the long- term horizon
Asset allocation is the most important investing task that is not a one-time decision
Current Ratio
= Monetary Assets / Current Liabilities
Should be greater than 1.0
Aim for 2.0
Should be 2.33
What are the different types of income on tax return
What are treasury bonds
Treasury bonds are risk free because they are funded by the government; they can print more money or can raise taxes to pay off debt.
Investment Risk - with any long term investment, there will be bad and good years
With time, dispersion (variability) of returns in these years converges toward the average
Investment in bonds will give less uncertainty over time but will give smaller ultimate value than investing in riskier assets like stocks
As market interest rates rise and fall, the value of preferred stock moves in an opposite manner
What are stocks
What are dividends
Measuring stock risk:
What are bonds?
What is the return calculation for bonds
What are the advantages of investing in bonds
What is the total returns calculation on mutual funds
What is a mutual fund
An investment that raises money from investors, pools the money, and invests it in stocks, bonds, and other investments
What are some types of mutual funds
What are the objectives of mutual funds
What are the determining factors of a social security check
What is the monthly living expenses covered ratio
monetary assets / month's living expenses
What is a defined contribution plan
Defined-contribution employer-sponsored retirement plans provide you with a specific amount of income when you retire, based on factors such as your salary and years of employment
T
F
A (a) is a defined-contribution plan used by small businesses with less than 10 employees
