Credit History- Review Does this establish a good credit history? – Getting a new, better paying job – Opening a savings account and investing lots of money into it – Taking out small loans you can afford to pay back – Making timely payments on a huge amount of debt

Is this a step towards establishing a good credit history? – Getting a new, better paying job – Opening a savings account and investing lots of money into it – Taking out small loans you can afford to pay back – Making timely payments on a huge amount of debt

10/7 tomorrow’s plan Agenda Credit History: review Compound interest Types of investments Objectives Students will be able to define and visually represent compound interest

Loans Have two parts: 1.Principal – this is the original amount of the loan 2.Interest – this is what you are charged for borrowing the money i.e. it is the price/cost of the loan interest is paid based on Annual Percentage Rate (APR) it is calculated based on 2 things – Prime Rate - % rate set by the Federal Reserve – baseline rate for all consumer loans – your credit history

Types of Interest Simple Interest Calculated on the principal amount of a loan Compound Interest on interest Calculated on the principal amount and the already accumulated interest

You make an investment of $5,000 that will earn 10% ______ interest a year Simple interest Year one $5000 x 10%= $500 interest Total= $5500 Year two $5500+$500= $6000 Year five $7500 Compound interest Year one $5000 x 10%= $500 interest Total= $5500 Year two $5500 x 10%= $550 $ =$6050 Year five $

Stocks, Bonds, Mutual Funds pgs.8-9 BSI PKT RISK and RETURN Stocks – individual share of a corporation = ownership of the company – Because you own part of the company, you receive a part of the companies profits – Stock prices are unpredictable

Mutual Funds Collection of investments (stocks and bonds) managed by a group of professional fund managers Diversity  because mutual funds represent a wide variety of assests, risk is lowered

Bonds Bonds – a ‘loan’ to a company or government whose value is based on % earned Fixed rate of interest for the term of the loan, and repayment of principal on the end There are different types of bonds: – US Treasury bonds – investment in the US gov’t – Municipal bonds – investment in state and local government – Corporate bonds—investment in a large company – “Junk” bonds – investments with a lower credit rating

What Should David do with $1,000 Directions: Read the investment advice that David receives from his family about where to invest then fill in the investment grid using +, - or ?. InvestmentsLiquidityRiskReturn Stocks Savings account Mutual Fund Bonds