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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