-
Name a tax free investment?
Municipal Bonds
-
Define Marginal tax rate?
The percentage of taxes owed at the last dollar you made.
-
Name a tax deferred investment?
Retirement accounts like IRAs, 401ks, and Pensions
-
Tax preferenced Investment income?
Dividends and Capital Gains
-
Bonds are most commonly sold in increments of ?
$1,000
-
Stock are most commonly sold in increments of ?
100 Shares or “Rounds Lots”
-
What is a stock dividend?
Earnings of the company distributed to shareholders usually quarterly.
-
What do bonds pay?
Interest usually paid semi-annually
-
What is the “Par” value of a bond?
The “face amount” of a bond which you will get back at maturity.
-
What’s the difference between Nominal Interest rates and Real Interest rates?
Nominal Interest rates are those that are posted as your return whereas Real interest rates are adjusted for inflation. (ie. Nominal minus inflation rate = Real)
-
What is the risk – return relationship?
The more risky an investment is, the more your expected return should be to compensate for the increased risk.
-
What’s one principle that we can apply to the above relationship to reduce risk?
Diversification
-
You bought 100 shares of stock for $20, and sold it later for $22. During the time you owned it you received $1 per share in Dividends. What was your % return on your investment?
What you made divided by what you paid: (22 – 20) + 1/ 20 =(3/20)
-
Every investment involves some risk. How could we define Speculation?
Speculation is when the investment’s value depends solely on supply/demand like investing in gold.
-
Systematic Risk vs Unsystematic Risk?
Systematic Risk is the risk of investing in the whole stock market whereas Unsystematic Risk is the risk that will affect just one company. Unsystematic risk is the only risk that is diversifiable.
-
What is Asset Allocation?
The % you wish to allocate to each broad category of Assets like you would like to split your investment funds 3 ways: 50% in US stocks, 40% in US bonds, and 10% in Foreign Stocks.
-
What is an efficient market?
It is a market where all relevant information is reflected in the stock price.
-
How easy is it to beat the market?
Not very easy. If you have broadly diversified your investment portfolio, you will then reflect the indexes that you are comparing against. For an investment manager, you will then have to deduct your fund’s expenses, and usually have to keep some money in cash in case of redemptions which will reduce you return.
-
Interest Rate Risk
the risk associated with fluctuations in security prices due to changes in the market interest rates.
-
Inflation Risk
is the likelihood that rising prices will eat away the purchasing power of your money.
-
Business Risk
the risk resulting from good or bad management decisions of the firm or how well the firm is or is not doing.
-
Financial Risk
the risk associated with the use of debt by the firm. If the firm cannot make its’ principal or interest payments, it may go bankrupt.
-
Liquidity Risk
the risk associated with whether you can sell a security quickly and at a fair price.
-
Market Risk
the risk associated with movements in the overall stock market.
-
Political & Regulatory Risk
the risk associated with unanticipated changes in the tax or legal laws.
-
Exchange Rate Risk
the risk associated with variation in earnings due to changes in currency exchange rates.
-
Call Risk
the risk that a bond may be redeemed before its’ scheduled maturity.
-
Equity Income
Mutual funds that pay high dividends
-
ADR
American Depository Receipt: foreign stocks deposited in the US to be traded in the US
|
|
