Podcast
Questions and Answers
Every investment carries some degree of risk.
Every investment carries some degree of risk.
True (A)
If a company pays dividends on a stock, does that mean that the stock has appreciated in value? Why or why not?
If a company pays dividends on a stock, does that mean that the stock has appreciated in value? Why or why not?
No, the payment of dividends indicates that a company has earned profits.
Bonds are considered to offer a guaranteed return, but which is still a potential risk that investors face?
Bonds are considered to offer a guaranteed return, but which is still a potential risk that investors face?
The issuer could go bankrupt.
What is one way in which bonds do not generate income for investors?
What is one way in which bonds do not generate income for investors?
Which statement best describes how an investor makes money off debt?
Which statement best describes how an investor makes money off debt?
Which best describes what a market index does?
Which best describes what a market index does?
They both invest money to earn a profit.
They both invest money to earn a profit.
Which factors can affect a stock's price? (Select all that apply)
Which factors can affect a stock's price? (Select all that apply)
Which can be traded in a commodities market?
Which can be traded in a commodities market?
Once stocks are on the market, how are their prices set?
Once stocks are on the market, how are their prices set?
Which statement is true of the relationship between risk and return?
Which statement is true of the relationship between risk and return?
Why should investors know the difference between nominal and real interest rates?
Why should investors know the difference between nominal and real interest rates?
If the Federal Reserve decreased the money supply, what would the effects be? (Select all that apply)
If the Federal Reserve decreased the money supply, what would the effects be? (Select all that apply)
The nominal interest rate could best be described as the rate.
The nominal interest rate could best be described as the rate.
Approximately how much of the initial investment's value would be lost after 15 years at 3% inflation?
Approximately how much of the initial investment's value would be lost after 15 years at 3% inflation?
_________ policy involves government changes to spending or taxation to affect the economy.
_________ policy involves government changes to spending or taxation to affect the economy.
An investment with a stable and predictable history will most likely have?
An investment with a stable and predictable history will most likely have?
Interest rates generally reflect?
Interest rates generally reflect?
Compared to high-risk investments, low- and medium-risk investments are in higher demand because they?
Compared to high-risk investments, low- and medium-risk investments are in higher demand because they?
If an investor has a $5,000 pretax return, the state tax rate is 4.5%, and the federal tax rate is 22.0%, what is the real investment value?
If an investor has a $5,000 pretax return, the state tax rate is 4.5%, and the federal tax rate is 22.0%, what is the real investment value?
How is a 401k different from an individual retirement account (IRA)?
How is a 401k different from an individual retirement account (IRA)?
Which investment has the least liquidity?
Which investment has the least liquidity?
An investment with more liquidity would be ideal for someone who?
An investment with more liquidity would be ideal for someone who?
Which investor is making a common error?
Which investor is making a common error?
Which statements are true regarding an individual retirement account? (Select all that apply)
Which statements are true regarding an individual retirement account? (Select all that apply)
Which of these are considered both short- and long-term investments? (Select all that apply)
Which of these are considered both short- and long-term investments? (Select all that apply)
Which investment advice would Gale most likely give to Alex?
Which investment advice would Gale most likely give to Alex?
Which is the best way a couple can increase their income from investments for when they retire in twenty years?
Which is the best way a couple can increase their income from investments for when they retire in twenty years?
Flashcards are hidden until you start studying
Study Notes
Investments and Risk
- Every investment carries some degree of risk, influencing potential returns and strategy.
- The payment of dividends signifies a company's profitability, but does not necessarily indicate stock appreciation.
Bonds and Returns
- Bonds offer returns that are legally guaranteed, but there's a risk of issuer bankruptcy.
- Income from bonds is generated through specified payments at maturity, not continuous cash flow.
Market Dynamics
- Market indices gauge overall performance of financial markets, serving as benchmarks for investment returns.
- Stock prices are influenced by the company’s financial health, overall market conditions, and economic factors.
Commodities and Trading
- Oil is a primary commodity traded in markets, highlighting the importance of natural resources in investing.
Risk-Return Relationship
- A fundamental principle: higher risks are associated with the potential for greater returns.
- Recognizing the difference between nominal and real interest rates is crucial for understanding inflation impact on investments.
Federal Reserve and Economic Indicators
- A decrease in the money supply typically results in increased interest rates, reduced borrowing, and lowered investment activities.
Taxation and Real Investment Value
- The nominal interest rate is simply the stated rate before adjusting for inflation and taxes.
- After accounting for a 4.5% state tax and 22% federal tax on a $5,000 return, the real investment value is $3,675.
Retirement Investment Options
- A 401(k), typically employer-sponsored, may offer matching contributions, distinguishing it from individual retirement accounts (IRAs).
- Among investments, a 401(k) generally has the least liquidity, making it less accessible for immediate cash needs.
Investment Strategies
- Investors should diversify their portfolios to mitigate risk, avoiding heavy investment in single stocks, regardless of the company's popularity.
- Contributions to IRAs have annual limits and can be tax-deductible, aiding in retirement savings.
Types of Investments
- Mutual funds, bonds, and commodities are classified as both short- and long-term investments, appealing to different investment strategies.
- Individuals planning for retirement should consider enrolling in a 401(k) and actively investing in the stock market for potential income growth.
Risk Tolerance and Retirement Planning
- Balancing risk-taking with retirement goals is essential; stepping outside comfort zones may be necessary for achieving financial objectives.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
