Which would you do? Take $1,000 today. OR Take 1¢ that will double each day for 30 days?

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Presentation transcript:

Which would you do? Take $1,000 today. OR Take 1¢ that will double each day for 30 days?

Here’s the Answer Day 1.02 Day 2.04 Day 3.08 Day 4.16 Day 5.32 Day 6.64 Day Day Day Day Day Day Day Day Day Day Day Day 18 2,621.00

at the end of 30 days... $10,737,422

SAVINGS & INVESTMENT Ag Business Management Spring 1999

Objectives List the reasons for savings & investment. Compare characteristics of various types of investments. Explain the concept of interest. Describe how investments can grow in value and calculate the future value of money.

Reasons for Savings Accounts Retirement Down payments Business start up Education

Types of personal investments Personal loans -- not liquid/very risky Saving acct. -- liquid/no risk Certificate of deposit -- liquid when due/no risk Money market acct. -- liquid/minimal risk Real estate -- not liquid/risky Appreciable asset -- not very liquid/risky

Treasury Bills Liquid when due/not risky Short-term Maximum maturity = 1 year Minimum investment = $10,000

Treasury Notes Liquid when due/not risky minimum $5,000 investment 3 years or less minimum $1,000 investment years

Treasury Bonds Liquid when due/not risky semi-annual interest $1,000 minimum investment years

Municipal Bonds Liquid when due/not risky Issued by state, city, school Maturity ranges from years Semi-annual interest Interest is tax exempt Minimum $5,000

Mutual Funds Semi-liquid/semi-risky Pool of money from many individuals Invested by professional money manager –equity funds - stock/industry, public utilities –fixed-income - corporate securities, gov agen –Balanced -combination of stocks & bonds

Other Investments Annuity -- some liquid; some not/low risk –tax deferred Precious metals -- not liquid/risky –buy & sell at market value & possession taken Stock market -- semi-liquid/risky –returns to investors –dividends –capital gains/losses -- sale of stock

Time Value of Money P = principle, i = interest, n = years Future value (Compounding) –FV = P(1+I) n Present value (Discounting) –PB = P[1/(1+i) n ]