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corporate issued, are rated and scored for creditworthiness. Private companies, like Standard and Poor (S&P) or Moodys carefully review the bonds, then publish an opinion about the ability of the issuer to meet all of the payment obligations. 10. To raise capital (money) for such things as public improvements. 11. D 12. debenture 13. C 14. coupon; coupon 15. increase/rise; decline 16. This refers to office buildings, shopping malls, hotels, warehouses, industrial buildings, apartment buildings and mixed- use properties which may have retail and office space and apartments on one site. They build wealth through appreciation and loan amortization. They also provide a long term income stream from tenants/rents. 17. $1500 (cost) + $50 (fee) + $50 (commission) = $1600 18. Capital gain. 19. Yes. Capital gain is the increase in value of the asset - the profit on sale. The capital gain is calculated: $2500 (sale price) - $1600 (basis) = $900 (profit) 20. They should wait another month to sell the stock or a heavy short term capital gains tax of 39.9% will be assessed on the profit! Are You Financially Literate? Chapter 11 Quiz A diversified portfolio contains a variety of different types of investments with different risk levels and within different industries. Students should indicate that a diversified portfolio is a risk management technique provides protection against poor performance of any one asset and economic downturn. Students should indicate that Hwang received a 36% ROI. 1. 2.
7. 8.
D
valuable intellectual property.
Students should indicate that the interest rate would be higher, because XYZ'’s bonds are now riskier and have a higher risk of default. Therefore, they need to offer a higher rate of interest to attract investors. C 10. Students should indicate that Lindsey could invest in a real estate investment trust. Students should explain that REITs pool the money of smaller investors together in order to make large investments in real estate. She could also look for an investment partner(s). 11. The difference between what the landlord collects in rent and pays out in expenses is called cash flow. A positive cash flow means the income covers the property’s expenses. If it has a negative cash flow, the income is not enough to cover the expenses. performing investments. It can take many years to build value. They can be difficult and expensive to liquidate. He must be very informed and stay up to date about the value of his collection. 13. B 14. Seojun underestimated the tax rate she would have to pay. She did not wait over a year to sell her stocks, so she had to pay a 39.9% capital gains tax rate, instead of the 15% rate she erroneously planned for. 15. A 16. A commodity is a raw resource that is mined, grown or drilled for such as corn, soybean, oil, hogs. Companies enter into futures contracts to assure price and delivery of a commodity they need for their product or service. 17. T 18. C 19. $4200 - $3000 = $1200. $1200 x .15 = $180. About $180 20. cash; real estate; debt; equity 9.
2. She is lacking perseverance. It can take a long time to build a successful business. Successful business owners stick with their business vision and don’t throw in the towel when the going gets tough. A sole proprietorship is owned and operated by one individual who is personally liable for its debts, so it is not appropriate for them. Alternatives are a corporation, a Limited Liability Company or a Partnership. If properly formed and maintained, these will protect them from most business liabilities. Good marketing is important. Marketing these days includes social media marketing website design, search engine optimization, Adword algorithms, demographic studies, PPC (pay-per-click), CPC (cost-per-click) budgets and analytics. Many small biz owners handle their own marketing. She can develop her skills by taking web design, digital marketing or SEO courses online. CRM refers to Customer Relations Management, which is having policies for successfully interacting with customers; HRM is human relations management, which includes how to recruit, interview, hire, and fire employees. IT is Information technology which refers to installing, integrating and maintaining tech systems. The advantages of buying a business are avoiding the start up costs, obviously, and becoming immediately operational. Due diligence is a review of all aspects of the business, including the physical location and condition, books, bank and tax records, leases and contracts, employee files, operating permits and licenses to reveal any potential problems with the business including its debts. A lawyer can assure that liability risks are eliminated or minimized. An accountant can confirm the financial condition of the business and whether the sale price is fair and equitable. Buying a business is a big investment. Get expert help. They need to file a fictitious business name statement with the state. This process is known as registering your “Doing Business As” (DBA) name. 10. It is an Employer’s Identification Number (EIN) also called Federal Tax Identification Number or TIN. 11. Yes. The business will need a Seller’s Permit from the state. 3. 4. 8. 9.
12. Collectibles are generally not high PRODUCT PREVIEW 5. 6. 7.
3. 4. 5. 6.
C C C
Advice for Entrepreneurs
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The product of human intelligence is called intellectual property (IP). There are laws regulating ownership and protecting it from theft. She needs to file with the United States Patent and Trademark Office (“USPTO”) for a patent to protect her
Common stock is more common — corporations issue more common than preferred. Common do not guarantee a dividend. Preferred pays regular dividends.
Answer Key 380
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