Investments Brian Wassmuth How they work

First, What is Interest? Interest is ‘The Price Paid for the Use of Money’ -McConnell, Brue Remember, money is NOT an economic resource. – It cannot produce goods or services.

Money as a Tool However, it is a useful tool that can be used to acquire goods and resources. Example If you needed to rent a truck to move your company’s supplies from one place to another, you would have to pay someone to use that truck for that time period.

Money as a Tool Read Passage Read Passage Pg. 303 Now, if a business needs money to expand, they can pay someone to use their money for a certain time period. What a person pays to rent money from someone is what we call?INTEREST

When to use your MoneyTool When borrowing money, it is key for a business to make sure that the return on their investment is greater that the cost. Example: –The annual interest rate on a $1000 loan is 10%. –A company anticipates a return of $95 per year on a $1000 investment –What will the company do?

When to Invest The company’s cost of making the $1000 investment is $100 per year. –The company would need a return of more than 10%, or $100, to benefit from the investment. Example: If the interest rate on a $1000 loan drops to 6%, and the Company expects a return of $95 on a $1000 investment, what should the Company do?

Federal Funds Rate This is the amount of interest that the Federal Reserve charges banks to borrow money from the government. The current Federal Funds Rate is: 5.25%

Importance The Importance of the Federal Funds Rate is for a bank or investment firm to be profitable, it must make a return that is higher than the Federal funds rate.

Your Project The goal of your investment proposal should be a return of over 5.25% –Why? To be sure of a return at this rate, an investor should diversify.

Diversify Why Diversify? –So if one investment underperforms or fails, other investments can take up the slack There are many ways to invest your money.

Options What are some common investment options that you have: 1.Commercial Property investment: retail centers, franchises, commercial vacant land. 2.Residential Property Investment: town homes, condos, residential homes. 3.Precious Metal : Platinum, Silver, Gold. 4.Conservative Investments : Bonds, Treasury Bills, Corporate Bonds, Savings, CD’s. 5.Stock Market : Indexes, Ritz Indexes, Individual Stocks, Mutual Funds. 6.Art and Antiques These are the investment options you will need to research and report on. Now go to this Link for a basic overview of investment strategies.Link

Contents Link – Yahoo FinanceLink – Brue, Stanley and McConnell, Campbell. Economics: Principals, Problems, and Policies. 6 th Ed. McGraw-Hill. New York 2005 – rving+fisher+time+value+of+money+masseur&source=web&ots=7DcFA9w0sL&si g=TBKYTdBDcU4BwFjToFDdiSLtpzs#PPA261,M1http://books.google.com/books?id=hObpeG6v1VsC&pg=PA303&lpg=PA303&dq=i rving+fisher+time+value+of+money+masseur&source=web&ots=7DcFA9w0sL&si g=TBKYTdBDcU4BwFjToFDdiSLtpzs#PPA261,M1 Various Google Image searches and Google Book SearchesGoogleGoogle Book Searches