Archive for the ‘Level 1’ Category

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What’s the difference between a regular bond and a junk bond?

Friday, October 2nd, 2009

“Junk” bonds are considered higher risk and lower quality than other bonds. Because of this, they promise a higher interest rate than normal. So, the higher rate gives you the possibility of higher returns but it also comes with a greater risk of default.

Junk bonds get the name “junk” from their low bond credit ratings. Companies like Standard & Poor’s and Moody’s Investors Service rate bonds to measure their riskiness – the lower the risk, the higher the quality, and vice versa. S&P’s “AAA” or Moody’s “Aaa” are the highest ratings a bond can get. Highly rated bonds are called investment grade. Anything below BB or Bb is deemed junk.

Debt is…

Friday, October 2nd, 2009

Debt is an amount owed to a person or organization for funds borrowed. For example, if you were to get a loan to pay for college, you are in debt and owe the bank however much you  borrowed plus a pre-determined cost in the form of interest.

A Government Bond is…

Friday, October 2nd, 2009

A government bond (in the U.S.) is issued by the United States Treasury and is considered one of the safest securities in the investment world. Bonds are issued to raise money and in exchange, the purchaser receives a predictable fixed interest rate for the duration of the bond.

Should you buy or lease your car?

Friday, October 2nd, 2009

Everyone who is looking to buy a car asks themselves this question, however there is no one right answer. Examining your particular financial situation will allow you to make the right choice between leasing and buying.

When you lease a car, you’re basically borrowing it for an extended period of time and paying for the change in that car’s value from when you first lease to when you return it to the dealership. Let’s say you lease a brand new Honda Accord which sells for $20,000. You lease it for 36 months and when you return it, it is only worth $13,000. Your monthly payments therefore will reflect the depreciation (or the loss of value) of the car and that $7,000 in depreciation will be paid over the course of those 36 months you lease the car. Lease agreements usually come with warranties that allow you to get your car fixed for free, should there be a problem within the warranty period.

On the other hand, if you were to buy the $20,000 Accord outright, you would pay for the entire cost of the vehicle instead of just the depreciated value. The benefits of buying a car are complete ownership of the vehicle, ability to drive as many miles as you would like, ability to customize your vehicle, and lastly, the ability to easily sell or trade your car.

Ultimately, if you are able to afford higher monthly payments, buying a car is probably the best choice for you. But if you want lower monthly payments and new cars every two or three years, leasing a car may be a better option.

Can a check float?

Friday, September 25th, 2009

While checks do have to obey the laws of gravity, they’re in suspended animation in another sense. A check is basically an IOU. You write someone a check, he or she redeems that check later for cash, and the payment is taken out of your account. Credit cards work in much the same way – you pay for a purchase with your card, and the bill is charged to your account and paid later on.

“Float” is that period of time when a check or credit card charge is in limbo. It’s the time between the moment you write the check and the moment payment is actually received or the moment when a purchase is first charged to your credit card to the moment you pay that bill. During float, the check or credit card charge is, in a sense, suspended. It’s not really performing a function at the moment, but its existence represents a transaction that will have to happen sooner or later. Some people float checks in order to buy time until sufficient money to cover the check appears in their bank account. If this actually happens, great. But if not, the check will bounce and some nasty fees (from the bank and often from the recipient of the check) will start to pile up.

A Beneficiary is…

Wednesday, September 23rd, 2009

A beneficiary is a person or institution who receives benefits from a trust, will, or life insurance policy. For example, when parents set up trust funds for their children, the children are the beneficiaries.

Why can’t you buy Cuban cigars in the States?

Wednesday, September 23rd, 2009

Currently in the U.S., it is illegal to buy, import, or sell cigars from Cuba. But, while cigars may be the most famous banned item, this law actually applies to any product from Cuba. The reason stems from a 1960 decision to impose a trade embargo on Cuba under President John F. Kennedy. The idea was to punish Cuba for hostile actions during the Cold War by denying it access to the enormous U.S. economy.

The embargo has been revised several times since its inception, but it hasn’t yet been lifted despite repeated calls for a free trade agreement from the business community. This embargo only applies to imports to the U.S., so American travelers will sometimes purchase Cuban cigars and other products in foreign countries and bring them back to America (although this is technically illegal).

A Matching Grant is…

Wednesday, September 23rd, 2009

A matching grant is a pledge to give a certain amount of money to an organization if it raises that same amount from other donors. Matching grants are meant to motivate others into charitable giving. For example, a wealthy philanthropist might tell a nonprofit that if they raise $250,000, then he will match it – doubling the total contribution.

A Capital Campaign is…

Wednesday, September 23rd, 2009

A capital campaign is an effort by a charity to raise a significant amount of money to pay for an important project – like a new building or extensive renovation. For example, a college might have a capital campaign to raise the funds for a new athletic facility.

A Chairman of the Board is…

Wednesday, September 23rd, 2009

A Chairman of the Board runs the board of directors for a corporation. He hires the CEO and along with the rest of the board, makes sure the company is in good financial shape and is doing its best to fulfill its mission statement. He is like the General Manager of a sports team, who hires the coach and makes sure the team business is being run efficiently. It goes without saying, of course, that the Chairman can be a woman (in which case she’d likely be referred to as the Chairwoman, Chair, or Chairperson of the Board).

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