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T009-01.01. Savings and Investments. 9.01 Summarize the various types of short-term and long-term investments. H3. T009-01.02. Investing. Putting your money to use in order to make money on it. Simple Interest vs. Compound Interest

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9 01 summarize the various types of short term and long term investments l.jpg


Savings and Investments


Summarize the various types of

short-term and long-term investments.


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  • Putting your money to use in order to make money on it.

  • Simple Interest vs. Compound Interest

    • Simple – interest that is computed only on the amount saved.

    • Compound – interest that is computed on the amount saved plus interest previously earned.

  • Securities refers to bonds, stocks, and other documents sold by corporations and governments to raise large sums of money.


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  • Savings is money put aside for future use.

  • Most common reasons to save are:

  • Major purchases

  • Emergencies

    • Saves money for a “rainy day”

  • Retirement


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Investing Through Banks

  • Savings Account

  • Simplest form of saving

  • Offered by all institutions (banks, credit unions, etc.)

  • Generally, a low minimum deposit is required

  • Interest is low and varies from institution to institution

  • Certificate of Deposit

  • Requires a minimum deposit for a minimum amount of time

  • Interest rates are higher than a savings account


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Investing Through BanksContinued

  • Money Market Fund

  • Kind of mutual fund, or pool of money, put into a variety of short-term debt by business and government.


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Savings and Investments

9.02 Summarize the investing in stocks and bonds.


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Investing in Bonds

  • Bonds

    • Promise to pay a definite amount of money at a stated interest rate on a specified maturity date.

  • Bondholder

    • Individual who lends money to a corporation.


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Bond Terms

  • Face Value

    • Amount being borrowed by the seller of the bond.

  • Coupon Rate

    • Rate of interest on the bond.


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Types of Bonds

  • Corporate Bonds

    • Issued by corporations

    • Used to finance buildings and equipment.

  • Municipal Bonds

    • Issued by local and state governments.

    • Used to finance schools, roads, airports, etc.


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Types of Bonds

  • Treasury Bonds

    • Issued by federal government.

    • Known as Savings or Federal Bonds

    • Types:

      • Series EE Bonds

        • Cost half the face value.

        • After a specified number of years the bond becomes worth the face value.

      • Treasury Bills

        • Issued for three months to one year.

      • Treasury Notes

        • Issued for two to ten years.

      • Treasury Bonds

        • Issued for ten or more years.


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Investing in Stocks

  • Stock

    • Share of ownership in a business.

  • Stock Certificate

    • Proof of ownership in a corporation

  • Market Value

    • Price at which a stock can be bought or sold.

  • Dividends

    • Part of profits shared with stockholders.


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Types of Stocks

  • Preferred

    • Priority over common stockholders in the payment of dividends.

    • No voting rights.

  • Common

    • General ownership in a corporation and a right to share in the corporation’s profits

    • Right to vote at shareholder meetings

      • One vote per share.


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Reading a Stock Quotation Table

  • 52 Week Hi – Highest price during previous 52 weeks

  • 52 Week Lo – Lowest price during previous 52 weeks

  • Stock – Company name abbreviated

  • Stock Symbol – Ticker symbol

  • Dividend – Current dividend in dollars per share based on the last dividend paid

  • Yield – Dividend yield based on the current selling prices per share


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Reading a Stock Quotation Table

  • PE – (Price/Earnings ratio, comparing the price of the stock with earnings per share).

  • Volume – Number of shares traded.

  • High – Highest price during the day.

  • Low – Lowest price during the day.

  • Close – Closing price for the day.

  • Net Change – Change in the closing price today compared with closing price on the previous day.


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Buying and Selling Stock on NYSE

Typical transactions follow these steps:

  • Floor broker (buyer) goes to the trading post at which time this specific stock is traded. It is traded with the floor broker (seller) who has an order to buy.

  • Account executive receives your order to sell stock and relays to the brokerage firm’s representative at the stock exchange.

  • A clerk signals the transaction to a floor broker on the stock exchange floor.


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Buying and Selling Stock on NYSE cont.

  • Floor broker (buyer) signals the transaction back to the clerk. Then a floor reporter – an employee of the exchange – collects the information about the transaction and inputs it into the ticker system.

  • The sale appears on the price board, and a confirmation is relayed back to your account executive, who then notifies you of the completed transaction.


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Brokerage Firm

Sells stocks for consumers

  • Broker

    • Person who acts as a go between for buyers and sellers of securities.

  • Commission

    • Fee charged by a brokerage firm for the buying and/or selling of a security.


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Stock Exchanges

  • Marketplace where brokers who represent investors meet to buy and sell securities.

  • Examples:

    • NYSE

    • NASDAQ

    • AMEX

    • Exchanges in San Francisco, Boston, Chicago


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Types of Markets

  • Bull Market

    • Occurs when investors are optimistic about the economy.

  • Bear Market

    • Occurs when investors are pessimistic about the economy.


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Numerical Measures for a Corporation

  • Current Yield

    • Annual dividend divided by current market value.

  • Price/Earnings Ratio

    • Price of one share of stock divided by the earnings per share.


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Selling a Stock

  • Total Return

    • Calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment.

  • Capital Gains

    • Profit from the sale of an asset such as stocks, bonds, or real estate. Taxed as income.

  • Capital Loss

    • Sale of an investment for less than its purchase price. Subtract up to $3,000 in losses from your income.


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Savings and Investment

9.03 Summarize other types of investments.


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Investing Through Insurance

  • Life Insurance

    • Cash-value insurance provides both savings and death benefits.


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Investing in Your Future

  • Pension

    • Series of regular payments made to a retired worker under an organized plan.

  • Individual Retirement Account (IRA)

    • Tax sheltered retirement plan in which people can annually invest earnings.

    • Types:

      • 401k or 403b contributions are tax deductible and funds are taxed as regular income when they are withdrawn after age 59 ½.

      • Roth IRA contributions are not tax deductible, but investment gains and all funds on which taxes are prepaid are tax free when they are withdrawn after age 59 ½.


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Investing in Your Future

  • Annuity

    • Amount of money that an insurance company will pay at definite intervals to a person who has previously deposited money with the company.


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Investing Through Other Sources

  • Real Estate

    • Land and anything that is attached to it.

    • Mortgage

      • Legal document giving the lender a claim against the property.

    • Home Equity

      • Difference between the price at which you could currently sell your house and the amount owed on the mortgage.

      • Appreciation – general increase in value of a property.

      • Depreciation – general decrease in value of a property.


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Investing Through Other Sources

  • Types of Property

    • Undeveloped Property (Land)

      • Unused land intended only for investment purposes.

    • Commercial Property

      • Land and buildings that produce lease or rental income.

    • Real Estate Investment Trusts (REITs)

      • Works like a mutual fund.

      • Combines funds to invest in real estate.


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  • Items of personal interest to collectors.

  • Rare coins, works of art, antiques, stamps, rare books, comic books, sports memorabilia, rugs, ceramics, paintings, and other items that appeal to collector and investors.


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  • Include grain, livestock, precious metals, currency, and financial instruments.

  • Futures

    • Commodity contract purchased in anticipation of higher market prices for the commodity in the near future.


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Investing With Others

  • Investment Clubs

    • Small group of people who organize to study stocks and to invest their money.

  • Mutual Fund

    • Created by an investment company that raises money from many shareholders and invests it in a variety of stocks.

      • Limit risk by diversifying investment.


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Speculative Investment

  • Speculator

    • One that has an unusually high risk.


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Savings and Investments

9.04 Analyze the factors that affect the rate of return on a given savings or investment plan and calculate the rate of return.


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Savings Plan

  • Putting money aside in a systematic order.

  • Ways to put money aside:

    • Regular deposit

    • Automatic deposit

    • Electronic funds transfer


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Starting a Program

  • Factors determining a program

    • Safety

      • Assurance that the money you have invested will be returned to you.

    • Liquidity

      • Ease with which an investment can be changed into cash without losing any of its value.

    • Yield

      • Rate of return (percentage of interest that will be added to you r savings over a period of time).

    • Diversification

      • Process of spreading your assets among several different types of investments to lessen risk.


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Factors That Affect the Rate of Return on an Investment

  • Risk - Chance of loss.

  • Rate of Return (yield)

    • Amount of money the investment earns.

    • Compounding frequency is the interest computed on the amount saved plus the interest previously earned.

  • Liquidity

    • Ease with which an investment can be changed into cash.

  • Resistance to inflation

    • Will rate of return keep up with inflation?

  • Tax considerations


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Factors that Affect the Selection of Financial Institutions

  • Services offered

  • Business hours

  • Location

  • On line services


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Financial Security Investments(low risk)

  • Cash

  • Savings Accounts

  • Money Market Accounts

  • Certificate of Deposit

  • US Government Bonds

  • Retirement Accounts


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Safety and Income Investments

  • US Treasury Securities

  • Conservative Corporate Bonds

  • State and Municipal Bonds

  • Income and Utility Stocks


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Growth Investments

  • Income and Growth Stocks

  • Mutual Funds

  • Real Estate

  • Convertible Bonds


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Speculation Investments(high risk)

  • Options

  • Commodities

  • Precious Metals and Gems

  • Speculative Stocks

  • Junk Bonds

  • Collectibles


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Calculating Rate of Return

  • Rate of Return = Total Interest Earned divide by Original Deposit

  • Example:

    • If you deposited $100 in account that paid $6.18 interest for one year. What is the rate of return?

    • $6.18/$100 = .0618 = 6.18%


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Savings and Investments

9.05 Analyze how saving and investing influences economic growth.


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Savings and Economic Growth

  • Individual savings allow:

    • Businesses to expand and create more jobs.

    • Demand for goods and services to increase.

  • Failure to save will cause less money to be invested and the economy may slow as a result.

  • Savings contribute to our economic stability

  • Government uses savings to build highways, schools, and public services


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Savings and Investments

9.06 Describe wills and

other legal documents.


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  • Legal document that specifies how you want your property to be distributed after your death.

  • Intestate

    • Die without a legal will

    • State will step in and control the distribution of your estate.

  • Probate

    • Legal procedure of proving a will to be valid or invalid.


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  • Simple Will

    • Leaves everything to your spouse

  • Formal Will

    • Prepared by an attorney.

  • Holographic Will

    • Handwritten will that you prepare yourself

    • Needs to be written, dated, and signed entirely in your own handwriting.


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Other Legal Documents

  • Trusts

    • Legal arrangement that helps manage the assets of your estate for you benefit or that of your beneficiaries.

  • Living Will

    • Document in which you state whether you want to be kept alive by artificial means if you become terminally ill and unable to make such a decision.

  • Power of Attorney

    • Legal document that authorizes someone to act on your behalf.


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GuardianPerson who accepts the responsibility of: 1. Providing children with personal care after their parents’ death 2. Managing the parents’ estate for the children until they reach a certain age


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Savings and Investments

9.07 Explain how agencies regulate financial markets and protect investors.


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  • Securities and Exchange Commission (www.sec.gov)

    • Protect investors and maintain the integrity of the securities markets.


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  • NASD (www.nasd.com)

    • Registers member firms, writes rules to govern their behavior, examines them for compliance and disciplines those that fail to comply.

    • Largest private sector provider of financial regulatory services.

    • Has helped bring integrity to the markets and confidence in investors.


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Protecting Investors

  • Department of the Secretary of State (www.secretary.state.nc.us /sec )

  • State Securities Laws

    • Known as “blue sky” laws

    • Intent of laws is to protect the investing public by requiring a satisfactory investigation of both the people who offer securities as investments and of the securities themselves.

    • Securities division addresses investor complaints concerning securities brokers and dealers , investment advisers and commodity dealers as well as complaints about offerings of particular investment vehicles.