White Plains Public Schools



Homework #11 Name: _____________________________

Economics/E. Napp Date: _____________________________

This Week’s Glossary:

1- Investing

• Investment is the act of redirecting resources from being consumed today so that they may create benefits in the future.

2- Diversification

• Diversification is the act of spreading out investments to reduce risks.

3- Bonds

• Bonds are certificates sold by a company or government to finance projects or expansion.

• Basically, bonds are loans that represent debt that the government or corporation must repay an investor.

• Remember the investment poem: “Stocks – you own. Bonds - you loan.”

Multiple-Choice Questions:

|1. The higher the potential return, the |5. A claim on the property or income of a borrower is a(n) |

|(1) Higher the liquidity of an investment. |(1) Investment. |

|(2) Higher the time risk for an investment. |(2) Financial asset. |

|(3) Higher the risk for an investment. |(3) Mutual fund. |

|(4) Higher the inflation risk for an investment. |(4) Return. |

| | |

|2. Spreading out investments to reduce risk is |6. The interest rate that a bond issuer will pay to a bondholder is |

|(1) A financial system. |the |

|(2) A financial intermediary. |(1) Maturity. |

|(3) A financial asset. |(2) Coupon rate. |

|(4) Diversification. |(3) Par value. |

| |(4) Yield. |

|3. An institution that helps channel funds from savers to borrowers is| |

|a |7. Standard & Poor’s and Moody’s would be least helpful while making |

|(1) Prospectus. |decisions concerning the purchase of |

|(2) Financial intermediary. |(1) Municipal bonds. |

|(3) Mutual fund. |(2) Corporate bonds. |

|(4) Portfolio. |(3) Savings bonds. |

| |(4) Junk bonds. |

|4. A fund that pools the savings of many individuals and invests this | |

|money in a variety of stocks, bonds, and other financial assets is |8. A low-rated, potentially higher-paying bond is a |

|called a(n) |(1) Savings bond. |

|(1) Mutual fund. |(2) Municipal bond. |

|(2) Investment. |(3) Corporate bond. |

|(3) Financial system. |(4) Junk bond. |

|(4) Prospectus. | |

| | |

|9. In the late 1920’s, which of the following methods allowed |14. Most bonds: |

|investors to purchase stock at a fraction of its price and borrow the |(1) Give bondholders a voice in the affairs of the corporation. |

|rest from the brokerage firm? |(2) Are interest-bearing obligations of governments or corporations. |

|(1) buying on futures |(3) Are money market securities. |

|(2) buying on a bear market |(4) Are floating-rate securities. |

|(3) buying on a margin | |

|(4) buying on debt |15. Which of the following is not an advantage of investing in bonds? |

| |(1) Bondholders receive their payments before shareholders can be |

|10. An investor who owns stocks in many different companies would most|compensated. |

|likely see a rise in the overall value of her portfolio during a |(2) Bonds have unlimited profit potential. |

|(1) Bull market. |(3) Bond investments are relatively safe from large losses. |

|(2) Bear market. |(4) Bonds are good sources of current income. |

|(3) Capital gain. | |

|(4) Dividend growth. | |

| |“How many millionaires do you know who have become wealthy by |

|11. A individual portion of stock is referred to as a(n) |investing in savings accounts? I rest my case.” |

|(1) Equity. |~ Robert G. Allen |

|(2) Share. | |

|(3) Capital gain. | |

|(4) Stock split. |“Invest in yourself. Your career is the engine of your wealth.” |

| |~ Paul Clitheroe |

|12. The index that shows how 30 specific industrial stocks have traded| |

|is called the | |

|(1) Stock exchange. |“It’s not how much money you make, but how much money you keep, how |

|(2) S & P 500. |hard it works for you, and how many generations you keep it for.” |

|(3) Dow. |~ Robert Kiyosaki |

|(4) OTCC market. | |

| | |

|13. Which of the following types of assets represents ownership |“Financial peace isn’t the acquisition of stuff. It’s learning to live|

|interest in a corporation? |on less than you make, so you can give money back and have money to |

|(1) Options. |invest. You can’t win until you do this.” |

|(2) Futures. |~ Dave Ramsey |

|(3) Stocks. | |

|(4) Bonds. | |

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Questions:

1- What is the difference between investing in stocks and investing in bonds?

2- How does saving money differ from investing money?

3- Why is investing money riskier than saving money?

4- What is diversification and why is it a good investment strategy?

5- What is a junk bond and why do some investors invest in junk bonds?

6- How do stockholders make money?

7- Why do stockholders sometimes lose money?

Analyzing Cartoons:

1- Explain the economic meaning of the following cartoon.

[pic]

2- Explain the economic meaning of the following cartoon.

[pic]

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