Economics unit 5

Guided Reading Activity Personal Financial Literacy Lesson 2 Business Organizations and Your Money Review Questions Directions: Read each main idea and answer the questions below. Refer to your textbook as you write the answers. A. Business Organization and Risk Main Idea: Transferring money from savers to businesses is important to the development of new businesses. There are many kinds of businesses, including sole proprietorships, partnerships, and corporations. Each type of business has advantages and disadvantages. Corporations raise money differently than sole proprietorships and partnerships. 1. What is capital formation and why is it important? 2. What is a sole proprietorship? What are the advantages and disdvantages of a sole proprietorship? 3. What is a partnership? What are the advantages and disdvantages of a partnership? 4. What is a corporation? What are the advantages and disadvantages of a corporation? Raising Capital Main Idea: All businesses must raise capital. Sole proprietors raising money than corporations. hips and partnerships have fewer options for 1. How can sole proprietorships and partnerships raise capital? 2. How can corporations raise capital? C. You As An Investor Main Idea: Stocks and bonds are two options for investors. Stocks carry more risk than bonds. There are several types of bonds, including municipal bonds, Treasury instruments, and corporate bonds. Many people choose to invest in an IRA, which provides funds a person can use during retirement. 1. What is the difference between undiversifiable risk and diversifiable risk? 2. Why do stocks have the largest amount of risk? How can you reduce this risk? 3. How are corporate bonds, municipal bonds, and Treasury instruments similar? How are they different? 4. Why is an IRA considered both a savings account and an investment? 5. What is the difference between a Traditional IRA and a Roth IRA? Summary and Reflection Directions: Summarize the main ideas of this lesson by answering the question below. A friend has just received a small inheritance and wants to use it to start a business, but she isn't sure what type of business to form. She also wants to invest some money that she will be able to use in the future to grow the business. Give your friend advice about what type of business would be best and how to invest the money. Be sure to explain how to reduce risks associated with investment