Flashcards Section 25, 26, 27, & 28

What is the time value of money?

The time value of money states that a dollar today is worth more than a dollar in the future due to potential earning capacity.

What is present value (PV)?

Present value (PV) is the current worth of a future sum of money, discounted at a given rate to reflect its value today.

How is present value calculated?

PV = FV / (1 + i)^n, where FV is future value, i is interest rate, and n is the number of periods.

What is future value (FV)?

Future value (FV) is the amount an investment will grow to over time, considering compound interest.

How is future value calculated?

FV = PV * (1 + r)^n, where PV is present value, r is interest rate, and n is the number of periods.

What is a market order?

A market order is an order to buy or sell a stock immediately at the best available price.

What is a limit order?

A limit order sets a specific price at which an investor is willing to buy or sell a stock, ensuring price control.

What is a stop-loss order?

A stop-loss order automatically sells a stock when it reaches a specific price, protecting against large losses.

What are the pros and cons of online trading apps?

Pros: Easy to use, low fees. Cons: Limited research tools, less personalized advice.

What factors should you consider when choosing a broker?

Consider fees, access to investment products, level of support, and platform usability.

What is an IPO?

An Initial Public Offering (IPO) is when a private company sells shares to the public for the first time.

What is the difference between an IPO and a public company?

An IPO is a company going public, whereas a public company already has shares traded on an exchange.

Why is a company’s ownership structure important?

It indicates the confidence of large investors and helps assess stability and influence on stock prices.

What is capital gains tax?

A tax on the profit from selling an investment, with different rates for short-term and long-term holdings.

What are brokerage fees?

Fees charged by brokers for executing trades, which vary depending on the platform and service level.

How can investors reduce taxes on stock investments?

By using tax-advantaged accounts, holding investments long-term, and harvesting tax losses.

Why should investors consider fund management fees?

High management fees can erode returns over time, affecting the growth of an investment portfolio.

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