Question

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unit 4 study guide
define these key terms in your own words like you are explaining them to a friend who hasn’t taken econ?

1. in a basic sense, what are ira, roth ira, 401(k)?

1. volatility

1. deposit

1. return

1. inflation

1. mutual fund

1. stock

1. equity

1. lease

Explanation:

To answer these, we define each term in simple terms:

1. IRA, Roth IRA, 401(k):

• IRA (Individual Retirement Account): A personal savings account for retirement, with tax advantages. You put money in, and it grows over time.
• Roth IRA: A type of IRA where you pay taxes on the money you put in now, so when you retire, you can withdraw it tax - free.
• 401(k): A retirement plan offered by employers. You can put a portion of your paycheck into it (often with employer matching), and it also has tax benefits.

1. Volatility: How much the price of an investment (like a stock) goes up and down. If it changes a lot, it’s volatile; if it’s steady, it’s not.

1. Deposit: Putting money into a bank account (like savings or checking) or giving money to an investment account.

1. Return: The money you get back from an investment. It can be profit (like from stocks) or interest (from a savings account).

1. Inflation: When prices of things (like food, rent) go up over time, so the same amount of money buys less. For example, a candy bar that cost $1 now costs $1.25 later.

1. Mutual Fund: A pool of money from many people, used to buy a bunch of different investments (stocks, bonds, etc.). Managed by experts, so you don’t have to pick individual investments.

1. Stock: A small piece of a company. If you own stock, you own a part of that company and can make money if the company does well.

1. Equity: Ownership in something (like a company or a house). For a company, it’s the value of the company minus what it owes. For a house, it’s how much of the house you actually “own” (what you paid minus what you still owe on the mortgage).

1. Lease: A contract to use something (like an apartment, car) for a set time, paying a fee (rent) to the owner. You don’t own it, but you can use it during the lease.

Answer:

1. IRA: Personal retirement savings account with tax benefits. Roth IRA: IRA with after - tax contributions, tax - free withdrawals in retirement. 401(k): Employer - sponsored retirement plan with payroll deductions (often employer - matched).
2. Volatility: Degree of price fluctuation in an investment.
3. Deposit: Placing money into a bank/investment account.
4. Return: Profit/interest from an investment.
5. Inflation: General rise in prices, reducing money’s purchasing power.
6. Mutual Fund: Pooled investment in multiple assets, managed by professionals.
7. Stock: Ownership share of a company.
8. Equity: Ownership value (e.g., in a company or property).
9. Lease: Contract to use an asset (e.g., home, car) by paying rent, without ownership.