Exam 16: Managing Finances

Short Case Scenario 16-1 Jessica is looking forward to a family reunion at the beach. She is the first in her family to have graduated from college. She started her studies at the local community college and transferred to a prestigious private college several hours from her family's home. Jessica's major in college was business administration with a concentration in finance. As she approaches the beach house where her family will be staying, Jessica is glad that her days of being quizzed and tested are over. She is looking forward to an opportunity to relax and to put her brain on "pause." However, Jessica's family has other plans for her. Almost before she emerges from her car, the questions begin. Jessica's great-aunt Irene is hoping for a little investment advice. Irene explains, "One of my CDs has recently matured and I'm hoping to roll it into an investment where I might make a little more interest. Your cousin Eddie has suggested that I invest in bonds, but I'm not sure what to think. You know, dear, Eddie's never been very bright and I'd be foolish to take his advice without a little more information. -Should Jessica advise her Aunt Irene to become an angel investor for Jessica's brother's partnership?

The investment industry categorizes firms according to size of capitalization.

Why do we track the market using stock indexes?

Unlike the Dow and the S&P 500,all NASDAQ-listed companies,not just a selected few,are included in the index for a total of some 3,800 firms across six continents.

Stocks are known as securities because they represent a secured interest in a company.

The NASDAQ Composite Index is a specialty index that measures the performance of the smallest U.S.companies based on market capitalization.

Existing stocks and bonds are sold in the ________.

Which of the following is an advantage of ETFs over mutual funds?

A(n)________ is a summary of price trends in a specific industry and/or the stock market as a whole.

What is book-entry ownership and how has it changed investing?

The book value of a share of common stock is expressed as total shareholders' equity divided by the number of shares of stock.

________ means buying several different kinds of investments rather than just one.

What is market capitalization?

Why is the use of equity financing by means of common stock expensive?

Profit realized from the increased value of an investment is known as capital gain.

Bankruptcy is the court-granted permission not to pay some or all debts.

What is a stock split?

Differentiate between a discount broker and a full-service broker.

How did Freddie Mac and Fannie Mae contribute to the mortgage crisis?

A portfolio is the combined holdings of all the financial investments - stocks,bonds,mutual funds,real estate - of any company or individual.