Financial Algebra 27 April 2018

announcements I have physical copies of your last homework assignment It is due by May 8th I will not be proctoring next week I will be finishing this chapter (by Friday) Grades are mostly updated – I still have to put in the bank accounts grade, so don’t panic Take-home quizzes are in and some people owe me make-ups I won’t be here on Monday…but there will be copies of make-up assignments for those that need them

announcements Your last take-home quiz on Friday at the end of class It will be due by May 8th (Seniors, this is the day of your final) You will not need all of that time (it’s only 10 questions long) Expect a study guide and/or Quizlet to be prepared for your final exam Both should be done by this evening A link to it will be posted on the website as soon as it is finished Hard copies will be available on Monday

Key terms and vocabulary Commission Diversification Federal agency bond Junk bond Municipal bond Mutual fund Treasury bonds

bonds As we covered from previous lectures, bonds are promises to repay a certain amount of money at some point in the future But there are many different types of bonds Treasury bonds Municipal bonds Federal agency bonds Corporate bonds Each bond type has risks and advantages

bonds Treasury bonds: These are issued by the US Treasury to finance the debt of the United States government. Risk is minimal since they are backed by the government Interest earned on these bonds are subject to federal tax, but exempt from state/local taxes Investors can also buy treasury bonds directly from www.treasurydirect.gov Federal agency bonds: These types of bonds are specifically meant to encourage home ownership These bonds are issued by federal agencies such as the Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae) to fund projects The bond proceeds are used to buy mortgages to encourage home ownership

bonds Municipal bonds: These are bonds issued by state and local governments to finance large public projects such as water and sewer systems. Risk is minimal, but default (non-payment) is possible Investors do not pay federal tax on the interest and can be exempt from state/local taxes if they live locally Corporate bonds: These types of bonds are issued by large firms The degree of risk depends on the strength of the company Companies with a solid financial position will have a low risk of default Bonds sold by corporations with the highest risk are called “junk bonds”.

Mutual funds Mutual funds: These organizations sell shares to investors in order to collect a pool of money that is then used to buy various investments An investment team normally oversees the funds The shareholders see an increase or decrease in the value of their shares in the mutual fund based on the overall performance of the fund’s investments Investors can purchase shares either directly from the companies, or do business through brokers These accounts provide the benefit a of allowing your money to grow tax free until you retire Diversification: The process of investing in multiple investments. Diversifying investments reduces risk because failure of one company will not significantly impact the entire amount invested