Term
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Definition
| putting your money into an asset that generates a return (stocks, bonds, mutual funds, or real estate) |
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Definition
putting money into an asset
future values relies on supply and demand
(collectors items, gold, baseball cards, derivative securities) |
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Term
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Definition
loans where your rate of return is predetermined
you receive your portion INTEREST |
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Term
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Definition
| amount you recieve when the bond matures |
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Term
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Definition
| the interest paid annually on a bond as a percentage of par value |
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Definition
you become part owner in corp
receive portion as DIVIDENDS |
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Definition
| generate a return through rent or capital appreciation |
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Definition
| rate of return without adjusting for inflation |
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Definition
| additional returns demanded by investors for taking on additional risk |
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| inflation risk premium (IRP) |
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Definition
| compensation for the anticipated inflation over life of investment |
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| default risk premium (DRP) |
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Definition
| compensation for possibility that issuer may not pay the interest or repay the principal |
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| maturity risk premium (MRP) |
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Definition
| compensation on longer-term bonds for value fluctuations in response to interest rate changes |
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| liquidity risk premium (LRP) |
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Definition
| compensation for a bond that cannot be quickly converted into cash at a fair market value |
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Term
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Definition
associated with fluctuations in security prices due to changes in market
rise in market rate reduces value of your lower rate security
IMPOSSIBLE to eliminate |
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Term
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Definition
risk that prices will erode purchasing power
closely linked with interest rate risk
almost impossible to eliminate |
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Definition
| associated with poor company management or product acceptance |
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Definition
| associated with company's use of debt |
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Definition
associatd with not being able to liquidate a security quickly and cost effectively
ex: collectibles and real estate |
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Term
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Definition
associated with swings in overall market
economy, SD, interest rate
impossible to eliminate |
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| policy and regulatory risk |
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Definition
results from unanticipated changes in tax or legal environment
difficult to predict |
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Term
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Definition
callable security may be taken back before maturity
if bond is called, investor normally receives the face value plus one year of interest payments |
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Term
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Definition
associated with all securities and can not be reduced through diversification
(interest rate) |
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Term
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Definition
associated with ONE particular investment and can be reduced through diversification
(financial risk) |
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Term
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Definition
| number of different types of securities owned |
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