Thursday April 23, 2015  Review Credit  Finish Bankruptcy Articles  Investing Notes Agenda

CIVICS AND ECONOMICS DAY 144

Credit Review  What is Credit?  What is a good credit score?  How can you build credit?  What is the affect of bad credit?

Bankruptcy Articles In partners…On One Sheet of Paper. Read the two articles about Bankruptcy and answer the 13 questions on bankruptcy. Questions 1-5: “What is the difference between chapter 11, chapter 7 and chapter 13 bankruptcy?” Questions 6-14: “6 Bankrupt Celebrities Who Went From Rich to Broke”

Investment Strategies

What is Investing?  Investing- spending money to purchase something with the expectation that it will increase in value or return a profit over time.

Investing  Savings is for more short-term goals  Investing is for long term goals.  Can sometimes be risky but (generally)Higher Risk, Higher Reward  This is called risk/reward trade-off

When should you save and when should you invest?  Savings: Unexpected expenses  Ex: Taking your elementary school crush out on a date  Need a new radiator in your car  Investing: Long Term future plans  Ex: I want to own a house that me and Mrs. Taylor Swift Neanover can live in.

Idea behind Investing  Time value of money.  Money right now has more value than the same amount received later.  This is because of interest you will get in the future.

Lottery Problem YOU WON THE LOTTERY!!!!  Your Choice is $48.4 Million now or $87 million spread out over 30 years. Which is the better choice?  Lump Sum, because of the time value of money. If you invest your money now, your money will last you longer than those 30 years of 2.9 million a year.

Basic Interest Computing Interest= Principal x Interest Rate x Time $4=$100 x. 04 x 1 Year $100 x. 03 x. 2 Years = ?????? Year 1: $103 (Gain of $3) Year 2: $ (Gain of $3.09) $100 x. 07 interest rate x 4 years Year Year 1: $107 Year 2: $ Year 3: $ Year 4: $ Your money keeps increasing because it is the interest added into the initial amount before it multiplies again.

Compounding Interest  Amount= Principal (1 + Interest Rate) ^ Number of Years A= P(1 +i) ^n Example $100 (1+.07)^5= $140 ^10= $ ^30=$761.23

What is a Bond?  A fixed-interest obligation that either pays a yearly dividend or is paid off when it “matures” after a fixed amount of time.  Example: Buy a $100 dollar bond for $75 that matures in 20 years.  Considered a very safe investment

Certificate of Deposit  A certificate issued by a bank to a person depositing money for a specified length of time.  Most will pay you the amount plus interest if you wait until maturity, but will charge you a penalty to remove it early.  Last up to 5 years.  Considered a Safe Investment

Mutual Fund and Index Funds  Mutual funds are corporations that buy hundreds of different stocks.  These have lower/moderate risk.  There are experts handling these funds  Index funds invest in things all across the board and general perform better.  Considered Moderate/Medium Risk

What is Stock?  Most people make money by buying at a low value and selling high.  Each share entitles shareholder to a vote and dividends.  Dividends are portions of a corporation’s profits that it pays to its shareholders.  Considered very risky

Investing Strategies  A Plan to take your investable money and make investment choices between bonds, CDs, real estate and stocks.  Take into consideration age, risk tolerance level, and short/long term objectives.  Ex: A Younger Person has longer to recover losses so can handle higher risk in the long run. They should buy more stocks than bonds.

Risk of Investments LowModerateHigh Savings CDs Mutual Index Fund Stocks