FNCE 2820 Personal Finance
Exam Study Set
Reasons for Investing - Answer Lifestyle
Income
Provide funds for needs/desires
Lifestyle Investing - Answer Actually use the investment asset and gain joy from its use
Ex: house, boat, jewelry, collectibles
Income investing - Answer Gain CURRENT income via dividends and interest
Gain FUTURE income upon selling/maturity
Investing to provide funds for needs/desires - Answer investing to provide liquid funds
when needed
Ex: downpayment, childs education, retirement savings
3 Factors to Consider when Investing - Answer Current vs. Future Return
Income Tax Situation
Attitude Towards Risk
Income Tax Situation - Answer With a higher tax bracket, then will have higher tax on
investment returns
Attitude Towards Risk - Answer Risk Adverse (generally > 40 yrs old) - expect large
amount of compensation for taking risk
Risk Seeking (generally < 40 yrs old) - expect low compensation for taking risk
Investors Invest to - Answer Preserve capital
Achieve returns (either current or future)
Liquid Assets - Answer Investments that are held for liquidity
Money market acct, savings acct, mutual funds, US Series EE Bonds, CDs
Securities with Long/No Maturity - Answer US-T Bonds, Muni bonds, preferred stock,
common stock
Pooling Arrangements - Answer Mutual funds, Investment trust, limited partnership
, Contractual Claims - Answer Contracts, notes, put/call, futures, mortgage
Very high risk investments
Tangile Assets - Answer Real Estate, cars, collectibles, jewelry, durables, gold & other
metals
Generally tangibles __ liquid than intangibles - Answer MORE
Treasury securities vs. Agency securities - Answer T-Securities: backed by the FDIC
Agency Securities: NOT backed by FDIC, sold by other Federal Agencies
NYSE - Answer Largest exchange in the world
To trade on Floor must have a Seat and must have a Post to have a Seat
Over the Counter (OTC) Market - Answer Largest exchange in terms of securities traded
Traded via NASDAQ
Mostly small companies and high-tech companies
100% online
Securities Act of 1933 - Answer Applies to new issues/IPOs
Requires issuer to provide a PROSPECTUS
Securities Act of 1934 - Answer Broad, covers all aspects of securities trading
Outlaws fraud and misrepresentation
Established 10K and 10Q
Created enforcement (SEC)
Securities Investor Protection Act of 1970 - Answer Protects investor if stockbroker
runs into financial problems
Insured up to $500k of securities and $100 in cash
NOT required by law unless reach certain threshold, but highly recommended
Cash Brokerage Account - Answer Similar to bank charge account
Must pay for purchases within 3 days
Can receive share certificates
No leverage
Margin Brokerage Account - Answer Allows for leverage (borrowing from broker to pay
Exam Study Set
Reasons for Investing - Answer Lifestyle
Income
Provide funds for needs/desires
Lifestyle Investing - Answer Actually use the investment asset and gain joy from its use
Ex: house, boat, jewelry, collectibles
Income investing - Answer Gain CURRENT income via dividends and interest
Gain FUTURE income upon selling/maturity
Investing to provide funds for needs/desires - Answer investing to provide liquid funds
when needed
Ex: downpayment, childs education, retirement savings
3 Factors to Consider when Investing - Answer Current vs. Future Return
Income Tax Situation
Attitude Towards Risk
Income Tax Situation - Answer With a higher tax bracket, then will have higher tax on
investment returns
Attitude Towards Risk - Answer Risk Adverse (generally > 40 yrs old) - expect large
amount of compensation for taking risk
Risk Seeking (generally < 40 yrs old) - expect low compensation for taking risk
Investors Invest to - Answer Preserve capital
Achieve returns (either current or future)
Liquid Assets - Answer Investments that are held for liquidity
Money market acct, savings acct, mutual funds, US Series EE Bonds, CDs
Securities with Long/No Maturity - Answer US-T Bonds, Muni bonds, preferred stock,
common stock
Pooling Arrangements - Answer Mutual funds, Investment trust, limited partnership
, Contractual Claims - Answer Contracts, notes, put/call, futures, mortgage
Very high risk investments
Tangile Assets - Answer Real Estate, cars, collectibles, jewelry, durables, gold & other
metals
Generally tangibles __ liquid than intangibles - Answer MORE
Treasury securities vs. Agency securities - Answer T-Securities: backed by the FDIC
Agency Securities: NOT backed by FDIC, sold by other Federal Agencies
NYSE - Answer Largest exchange in the world
To trade on Floor must have a Seat and must have a Post to have a Seat
Over the Counter (OTC) Market - Answer Largest exchange in terms of securities traded
Traded via NASDAQ
Mostly small companies and high-tech companies
100% online
Securities Act of 1933 - Answer Applies to new issues/IPOs
Requires issuer to provide a PROSPECTUS
Securities Act of 1934 - Answer Broad, covers all aspects of securities trading
Outlaws fraud and misrepresentation
Established 10K and 10Q
Created enforcement (SEC)
Securities Investor Protection Act of 1970 - Answer Protects investor if stockbroker
runs into financial problems
Insured up to $500k of securities and $100 in cash
NOT required by law unless reach certain threshold, but highly recommended
Cash Brokerage Account - Answer Similar to bank charge account
Must pay for purchases within 3 days
Can receive share certificates
No leverage
Margin Brokerage Account - Answer Allows for leverage (borrowing from broker to pay
