Money Investments  What is an investment?  Investment is something bought for future financial benefit.  Promotes economic growth  Contributes to wealth of a nation  ex. Houses  Cars  Physical capital  Human capital

Money and Investing  Financial system - allows the transfer between savers and borrowers.  Financial Intermediaries – an institution that helps channel funds from savers to borrowers.  They are the link.  Can anybody give an example of a financial intermediary?  banks,  pension funds,  credit unions,  insurance company’s,  finance company’s  Mutual Funds

Money and Investing  Financial intermediaries  Share risk:  Diversification:  Mutual Funds:  Portfolio’s  Provide Information  On investments (companies)  Prospectus  Provide more liquidity  Speed to change investment into cash

Money and Investing  Return –amount of money that an investor receives above and beyond the sum that has been invested.  Rate of Return – refers to the return stated in a percentage of the total amount invested.  Capital gains –difference between the selling price and the purchase price that results in the financial gain of the seller. (per share)  Capital losses – difference between the selling price and the purchase price that results in the financial loss of the seller. (per share)

Do Now Who can give an example of what a financial asset or security is?

Financial Assets or securities  A claim on the property or income of a borrower.  Give examples ?  Bonds  Stocks  Options.  Homes ownership  Loans.

Types of Markets  Capital markets – a market in which money is lent for periods longer than a year  Money markets – a market in which money is lent for periods of less than a year

Types of markets  Primary market; a market where newly issued financial assets can be redeemed only by the original holder.  Secondary market: a market in which financial assets can be resold.

What is a bond?  Bonds are debt.  When you buy a bond you are lending money.  Parts of a bond.  Coupon – is the interest rate a seller will pay a buyer  Maturity – time when a loan is to be repaid.  The longer the maturity the larger the risk.  Par – amount to be repaid to the investor.

Do Now?  What is an investment?  Give examples  What is a financial asset ?  Give examples  What is a financial intermediary?  Give examples.  What are the four types of markets and how are they different?

Types of Bonds.  U.S. saving bonds  Treasury Bonds  T Bills – under 1 year  T notes 2yr, 3yr, 5yr, 10yr 30 yr.  Are the least risky because they are back by the United States Government.

Municipal bonds  Municipal bonds – issued by state and local governments to pay for such things as highways, parks, buildings, and schools. (Munis)  Investors do not have to pay state tax on Munis.

Corporate bonds  Bonds sold to help raise money to make businesses bigger.  Riskier than government bonds.  These bonds are rated by independent companies  Standard and Poor and Moody’s are the biggest rating agencies.  S&P Moody’s  AAA Aaa  AA Aa  A A  BBB Baa  BB Ba  B B  CCC Ca  Higher the rating the lower the risk.

Certificates of Deposit  Certificates of Deposit or CD’s.  Safe investment,  Can’t take money out until the maturity.

Do now  Does a bond with a maturity date that is two years away more or less risky than a bond that has a maturity that is 10 years away?  Comparatively a bond with which rating will pay the highest interest rate and why?  AAA  BBB  CCC

Junk bonds/ High Yield  Junk bonds are high risk and possibly high yield.  They are not investment grade  Anything below BBB Baa

The Stock Market  Stocks are certificates that signifies percentage ownership within a company.  Ex.  Under Armour (UA)  Market cap  Last trade  52 week high and low

Where are stock bought and sold?  Where are stocks bought and sold  Stock Exchanges – market where stocks are bought and sold.  Does anybody know two exchanges that based in New York?  New York Stock exchange (NYSE)  Nasdaq  Brokers and Brokerage firms buy and sell stock for investors.

The Stock Market  All holders of stock have a say in the company.  The holders of the majority of stock in the company can make the decisions for the company  &feature=related &feature=related &feature=related

Do Now? 1.What is a share of stock? 2.Where can u buy shares? 3.From whom can you buy shares? 4.Why do company’s go public? (IPO) 5.How are risk, liquidity, and return related?

Why do Companies Issue Stock?  It is a way for Companies to raise money for a project without going into debt.

Common Vs. preferred stock  Preferred stock owners  No voting rights  Bankrupt collect before common shareholders  Pay dividends  Common Stock  Voting rights for officers  Have say in company policy

Do now 1.Why do companies sell IPO’s? 2.What is the difference between a common stock and preferred stock? 3.What do the ratings of a bond tell us about that bond?

Income vs. Growth stocks  Income stocks  Give extra income  Pay dividends   Growth  Use income to build business  Grow in value over time 

Options and Futures  Futures are contracts to buy or sell commodities or financial assets in the future at a price set today.  Options give a holder of a stock the right to buy or sell stock at a set price or a set period of time.  Call option - right to buy Call option - right to buy Call option - right to buy  Put option - right to sell Put option - right to sell Put option - right to sell

Bears vs. Bulls  Bears - feel the market and the economy is slowing.  Cautious investors  Market is falling  Bulls – feel the market and economy are strong.  Will purchase stocks

How to track the market  Dow Jones industrial average  30 top industrial stocks on the NYSE  The S&P 500 or Standard and Poor’s 500  Tracks the 500 stocks on both the NYSE and the NASDAQ.

Company’s in the Dow 

TRACKING Individual STOCKS  52 WEEK HIGHS AND LOWS.  MANY PERIODICALS TRACK 52 WEEK HIGHS AND LOWS FOR THE NYSE AND THE NASDAQ  IT IS THE HIGH AND LOW CLOSING PRICE FOR THE LAST 52 WEEKS.

Round up  What is a difference between a future and option?  Why would an investor want to diversify?  Can you sell a stock without owning it?