how was capital formed?
through savings
Who is the most common investor?
entrepreneur
explain the circular flow of money in the financial system
households put money in financial institutions, then financial institutions their investment to firms government also borrows from financial institutions, firms then give money to banks through taxes and back to the house holds through their products, gov
when are high and low interest rates helpful or harmful?
when saving money-interest is helpful b/c it adds money
when borrowing money- interest is harmful b/c it's adding money to debt
how do most laborers increase human capital?
through education
what are the three levels of labor in regards to human capital?
unskilled, skilled, professional
explain the relationship between unemployment percent and level of human capital/ educational attainment.
not likely to be unemployed if you have a degree
more likely to be unemployed if you have less than a HS degree
what are personal and public rewards of successful entrepreneurship?
personal rewards- wealth, personal employment, freedom
public rewards- new products/services, cheaper product/ services, government revenue
what is the difference between limited liability and unlimited liability?
limited liability- obligation for owner to pay for full debt, taxed once (sole proprietorship)
unlimited liability - liability is limited to a fixed some, taxed twice (corporation/ partnership)
define corporation
Business recognized by the government as having all legal rights of an individual and created through a government charter. exists through selling and purchasing stock
What is the difference between preferred stock and common stock?
preferred stock - stock doesn't have voting rights but allows you to get your dividends first
common stock - stock comes with voting rights
what is collective-bargaining? What is traditionally bargained by unions?
Union represents all workers when negotiating with management; pay benefits, working conditions, and breach of contract disputes
what are some common work practices today that we're getting through the unions collectively bargaining?
40 hour work, week overtime pay, paid vacation/sick, days minimum wage, child labor laws, guaranteed lunch break, workplace safety standards
identify the difference between union shop state and open shop states
Union shop states - join union and pay dues to collectively bargain or choose not to join ($1500 in benefits)
Open shop states - join union and pay dad's not join union and still receive benefits (typically receive less benefits)
what borrowing option provides a fixed interest rate?
bank loans
when borrowing do you want interest to compound a lot of times are very few times?
very few times
how are your FICO score affect interest rates you get on loans?
higher FICO- lower interest rates
lower FICO- higher interest rates
what are some qualities of credit cards?
borrow money and use it anytime, convenient, excepted anywhere, pay balance interest is irrelevant, easy to obtain regardless of credit score, people spend more money with a credit card which leads to death
how do banks make money "free" checking and debit cards?
overdraft fees
what is a major argument against any sort of regulation against banks and credit card companies and any other form of lending institution?
whether or not to regulate it more because we are a free market country
what can your FICO score be used for?
ability to get a loan and how much interest is on the loan
what is the difference between an asset and liability (with examples)?
Asset - claim on others money that is owed to them parentheses (stock, bonds, and other investments)
Liability - money or possession that you hold that is owed to others (car loan, mortgages)
what type of risk and give the greatest rewards?
high risk investments
as a young person, how does consistency help you as an investor?
small investors now at low interest will become large because you have a lot of time for the investment to gain interest
What are bonds par value coupon and maturity?
par value - principal initially borrowed/length
maturity - life of a bond
coupon - stated interest
Which bond ratings are least risky and which are the most risky?
least risky - AAA
most risky - D
what is the rule of 72 when determining doubling time?
72 divided by interest = years take to double
what is the oldest market for stock in equities?
new york stock exchange (NYSE)
How does the S&P 500 identify how stocks are performing?
evaluate performance of a company and amount available
what is the difference between a bear and bull market?
Bear market - decreasing market
bull market - increasing market
Be able to read a stock page (certain things on it)
locate stocks 52 week high/low change, %change
what is the difference between a 401(k) and a Roth IRA?
Roth IRA - individual retirement account in which contributions are made after taxes so that no taxes are taken out at maturity
401(K) - a tax-deferred investment and savings plan to ask as a personal pension for employees
what are some key terms associated with a 401(k)?
tax deferred, tax sheltered
what happens to revenue generated from the investment of a Roth IRA?
interest accrued is never taxed
define dividend
precent of yearly profits received from a share
what is a mutual funds?
combines money from investors and by securities to achieve specific investment goals
why do people pay for any type of insurance plan?
future planning and unexpected events
what is an insurance premium?
small amount you're required to pay on a regular basis