Day 1 – Total and Annual Return Investment Basics Day 1 – Total and Annual Return

𝐴−𝑃 𝑃 Total Return 𝑁𝑒𝑤 −𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 The total percent your money increased or decreased. 𝐴−𝑃 𝑃 𝑁𝑒𝑤 −𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 OR

𝐴 𝑃 1 𝑌 −1 Annual Return The annual percent your money increased or decreased. 𝐴 𝑃 1 𝑌 −1

Example 1 - You invest a starting principal of $1000 and it grows to $1500 in 5 years. Calculate the total return and annual return. Interpret each.

Example 2 - You purchased shares in NewWeb.com for $2000. Three years later, you sold them for $1100. What were your total return and annual return on this investment? Interpret each.

Investment Considerations 1. Liquidity Can I access my money? 2. Risk Will I lose my money? 3. Return How much money will I get back?

Cash Investments Bank accounts Mostly liquid, least risky, lowest return Certificates of Deposit (CD’s) Must be in a certain amount of time Penalty for early removal Higher interest rate

Cash Investments Individual retirement account (IRA) Long term savings Least liquid Highest interest rate Tax-deductible

STOCK Share of ownership in a company Sale may yield gain or loss Some earn dividends (portion of the companies profit)

BONDS A loan to the government or a company Issuer pays simple interest to investor Matures at a set time.