Risk and Return

One very important relationship need to be mentioned at this point. There is the relationship between investment risk and return. Generally, the greater the risk, the greater the return. Among other considerations, an appropriate investment depends on the investor's risk tolerance. Federally insured bank savings accounts are for those with low risk tolerance, and real estate is more appropriate for investors with high risk tolerance. On the return side of the equation, real estate investors expect a greater return than they would receive by putting the same funds in a savings account.

Vocabulary

broker ( or: stockbroker) — an agent who buys and sell securities for other people

brokerage firm — a company of brokers

portfolio — the collection of securities owned by an investor

utilities — share of stock in companies supplying electricity, gas, water, ets

tax shelter — an investment made with the aim of reducing one's income tax

issue — the selling of shares by a company for the purpose of raising investment capital

speculative — taking financial risks with the hope of making large profits

price index — a number which expresses the average value of a set of related items

over — the - counter trading - buying stocks directly; that is, not on a stock exchange

merger — the uniting of two or more companies into one

dividends — the part of a company's profits paid to stockholders

active — said of stock that is bought and sold with great frequency

mutual fund — a corporation that has been formed for the purpose of investing the money of its shareholders in the securities of other companies

common stock (in Great Britain: ordinary shares ) — a share of stock entitling the owner to a percentage of the residual profits

preferred stock (in Great Britain: preference shares ) — a share of stock that gives the owner a fixed rate of dividend. Preferred stock holders are paid before common stock holders, but after bond holders.

taxable — that can be taxed. Property owned by churches and school is not taxable.

Dow Jones Industrial Average-average price of a selected group of industrial stocks on the Wall Street Stock Exchange (New York)

Point — a standard unit of value (e.g. $1.00) used to state current prices. The Dow Jones ndustrial Average dropped 12 points today.

split — the division of a stock into two shares in order to reduce the value of each share and make their stock more attractive to investors

municipal bonds — issue of bonds by the government of a city

tax - exempt — not taxable. Interest payments to municipal bondholders are tax-exempt

commodities — raw materials such as rubber or agricultural products such as coffee, wheat or livestock (animals)

futures — the purchase or sale of commodities on a specified future date.

speculate — to take financial risks with the hope of making large profits

speculation — the taking of financial risks with the hope of making large profits

1. Select the answer that correctly completes each sentence

1. The two largest utility companies just entered into a _____________.

a. commodity b. merger c. tax shelter

2. My_______ ___ will advise me about selling some of my stocks.

a. legatee b. credit manager c. broker

3. Many people buy municipal bonds because they are _______________.

a. active b. tax-exempt c. taxable

4. Since the stock____ ____, I earn greater_ _________.

a. split/dividends b. trade/mutual funds c. future/industrial averages

5. Carol wants our brokerage firm to help her with her ______________.

a. index b. portfolio c. profile

6. Mr. Rowinsky can’t afford to be a _________ investor.

a. preferred b. common c. speculative

7. The city is selling___ _____ in order to pay off its debts.

a. municipal bonds b. commodities c. mutual funds

8. Mr. and Mrs. D'Angelo bought 20 shares of __________ because they didn't want a fixed rate of dividend.

a. securities b. common stock c. preferred stock

Dialogue 1

Phil O'Brien and his colleague Carol Levine are discussing how to invest money.

Carol Phil, I heard about your aunt Katherine’s death. I am so sorry.

Phil Thanks, Carol. We'll really miss her. She was so kind to the whole family. You know, she even left Barbara and me a large sum of money in her will.

Carol What do you plan to do with the money? You might want to talk to Jeff Hunter, my broker, about investing some of it. As a broker, he can help you. The brokerage firm he works for is one of the best in the country.

Phil That's a wonderful idea. I already have a small stock portfolio. Barbara and I own some common and preferred stocks in utilities and four other large companies.

Carol I'm sure Mr. Hunter would be able to advise you about your taxable income. You know that you'll have to pay estate taxes on the inheritance. Perhaps he can suggest some tax shelters for you.

Phil I do study all the new stock issues and I watch the Dow Jones industrial average carefully as it goes up or down a few points. However, I don't think that I have enough money to be a speculative investor.

Carol Well, my broker can give you the latest information in all areas of the stock market, not just in investment for speculation. He knows all about price indexes, the latest over-the-counter trading figures, corporate mergers, stock splits, and so on.

Phil I will speak with him because I'd like to increase my dividends from stocks. Maybe he'll be able suggest some currently active stocks that I might want to invest in. Does his firm also handle municipal bonds and mutual funds?

Carol I'm sure it does. Municipal bonds have always been popular because the money you earn on them is tax-exempt. Mr.Hunter can also advise you on buying commodities on the futures market.

Phil I'll call Jeff Hunter this week to talk about investing.

2. State whether each statement is true or false based on the information the dialogue

1. Phil O'Brien wants to invest the legacy his aunt left him.

2. As a broker, Carol Leavine will help Phil with his investments.

3. Phil and Barbara O'Brien already have an investment portfolio.

4. Phil studies the stock market.

5. Phil feels he can now take great financial risks.

6. Jeff Hunter knows about all aspects of the stock market.

7. Phil hopes to increase his dividends from stocks.

8. The earnings on municipal bonds are taxable.

9. Carol thinks .Mr.Hunter's brokerage firm handles mutual funds.

10. Jeff Hunter doesn't know about buying commodities on the futures market.

3. Answer each of the following questions orally

1. Why do you think Phil and Barbra O'Brien may need a tax shelter?

2. What do the O'Briens have in their portfolio?

3. What does Phil watch in studying the stock market?

4. Why isn't Phil interested in speculation?

5. What are some of the things that Jeff Hunter can inform Phil about?

6. What kind of securities does Mr. Hunter's brokerage firm handle?

4. Matching. Find the words in the right hand column that are closest in meaning to the words in the words in the left hand column.

1.uniting of companies a. a collection of securities

2.brokerage firm b. commodities

3.take financial risk c. merger

4.utilities d. tax shelter

5.split e. tax-exempt

6.buying stocks directly f. speculate

7.raw material g. the gas and electric companies

8.investment to reduce taxes h. over- the- counter trading

9.portfolio i. company of brokers

10. not taxable j. division of a share of stock

5. Rewrite each of the following sentences replacing the underlined words with the correct form of one new words of this lesson

1.These stocks are frequently bought and sold.

2.Your agent will be able to sell those securities.

3.Are they going to buy more shares in the gas and water companies?

4.When the stock was divided, we bought more shares in the company.

5.The stockholders received large profits from the corporation.

6.How many units did the Dow Jones industrial average fall today?

7.New York City issued city government securities in order to finance street repairs and subway construction.

8.Deborah Adams plans to take a big financial risk in the stock market this year.

6. A. Answer each of the following questions with an affirmative response, then with a negative one, as in the model

Model: - Do you need some data?

- Yes, I need some / or - No, I don't need any.

1. Do you and your husband own some shares in mutual funds?

2. Did they buy some preferred stocks?

3. Will I find some good brokerage firms there?

4. Did Mr. Levine know about some corporate mergers?

5. Can we sell some commodities?

B. Model: There are some brokers in the office.

There are no brokers hi the office / or there aren't any brokers in the office.

1. There are some over- the- counter trading figures.

2. We sometimes visit the Stock Exchange.

3. Somebody has audited these accounts.

4. Either Mr. O'Brien or Mr. Levine will co- sing the loan.

5. I work in that brokerage firm also.

6. Anyone can be named as their agent.

7. Barbara O'Brien knows about securities too.

8. You sometimes check the Dow Jones average.

9. They’ll need some tax shelters.

10. The McNeils have either stocks or bonds in their portfolio.

C. Model: -Do you have any common stocks? - No, none.

1. Do you receive any dividends?

2. Did the board set some new policies?

3. Will they buy some utilities?

4. Did the teller have any customers?

7. Rewrite each of the following negative sentences as in the model.
Model: There isn't any money in the checking account.

There's no money in the checking account.

1. That bank doesn't extend any credit.

2. There aren't any price indexes in today's paper.

3. There aren't any fees for those services.

4. We don't receive any dividends.

5. There isn't any government intervention.

6. There isn't any time to draw up a will.

7. She doesn't have any shares in the corporation.

Date: 2014-12-28; view: 822