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Obj. 5.01 & 5.02 Vocabulary 1. Compound interest - Earning interest on interest 2. Consumption - The purchase of goods and services 3. Do it yourself - When you complete a task yourself rather than paying someone else 4. Emergency savings - Cash set aside to cover the cost of unexpected events 5. Interest - Price paid for using someone else’s money 6. Interest rate - Percentage rate used to calculate interest 7. Liquidity - How quickly and easily assets can be accessed and converted into cash 8. Pay yourself first - Saving for the future by putting money aside before paying regular monthly bills or using income for discretionary purchases 9. Principal - The original amount of money saved or invested 10. Saving - Accumulation of excess funds by intentionally spending less than you earn 11. Savings - Portion of income not spent on consumption 12. Time value of money - Money available at the present time (today) is worth more than the same amount if received in the future 13. Certificate of deposit - An account at a depository institution that is used for a fixed period of time and allows restricted access to the funds deposited 14. Checking account - An account that allows quick access to funds for transactions 15. Depository institution - Businesses that provide financial services 16. Liquidity - How quickly and easily an asset can be converted into cash 17. Money market deposit account - A account at a depository institution that usually has minimum balance requirements and tiered interest rates 18. Savings account - An account at a depository institution that is designed to hold money not spent on current consumption 19. Savings tools - Accounts offered by depository institutions whose main purpose is to help people manage their money 20. Tiered interest rate - The amount of interest earned depends on the account balance 21. Bond - A form of lending to a company or the government (city, state, or federal) 22. Brokerage firm - Facilitates the buying and selling of investments from a stock exchange 23. Capital Gain - Unearned income received from the sale of an asset above its purchase price 24. Discount brokerage firm - Only completes orders to buy and sell investments 25. Dividend - The share of profits distributed in cash 26. Financial advisor - A trained professional that helps people make investing decisions 27. Full‐service brokerage firm - Offer investment transactions as well as investment advice and a financial advisor 28. Index - A group of similar stocks and bonds 29. Index fund - A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index 30. Inflation - The rise in the general level of prices 31. Inflation risk - The danger that money won’t be worth as much in the future as it is today 32. Investment - Assets purchased with the goal of providing additional income from the asset itself but with the risk of loss 33. Investment philosophy - An individual’s general approach to investment risk 34. Investment risk - The possibility that an investment will fail to pay the expected return or fail to pay a return at all 35. Market price - The current price that a buyer is willing to pay 36. Maturity date - The specified time in the future when the principal (or initial investment) amount of the bond is repaid to the bondholder 37. Mutual fund - Created when a company combines the funds of many different investors and then invests that money in a diversified portfolio of investments 38. Portfolio diversification - Reduces risk by spreading money among a wide array of investments 39. Rate of return - The total return on an investment expressed as a percentage of the amount of money saved 40. Rent - A fee charged for the use of property or land 41. Return - The profit or income generated by saving and investing 42. Risk - The chance of loss from an event that cannot be entirely controlled 43. Speculative investments - Have the potential for significant fluctuations in return over a short period of time 44. Stock - A share of ownership in a company 45. Stockholder or Shareholder - The owner of a stock 46. Stock exchange - An organized, central service to buy and sell stocks, bonds and other investments that are traded 47. Tax‐advantaged investments - Reduce, defer, or adjust the current year tax liability