Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 1 CHAPTER Saving and investment planning Stock investments Bonds and mutual funds Real estate investments Other investments Savings and Investment Strategies

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 2 Saving and Investment Planning Goals Explain the basics of saving and investing. Identify types of savings and investments. Discuss factors to consider when evaluating savings and investment alternatives. 19-1

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 3 Key Terms saving investing yield liquidity

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 4 SAVING AND INVESTMENT BASICS Savings and investment activities Determine investment goals The growth of savings Interest Compound interest

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 5 Quarterly Compound Interest

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 6 How does saving influence economic activity? Answer Saving benefits the economy by making more money available for borrowing by individuals, businesses, and governments. When this money is spent, demand for goods and services increases, resulting in more jobs and more spending by workers. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 7 SAVING AND INVESTMENT CHOICES Savings plans Savings account Certificate of deposit Money market account Securities Stock investments Bond investments Mutual funds

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 8 SAVING AND INVESTMENT CHOICES Alternative investments Real estate Commodities Collectibles (continued)

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 19 9 What are the nine main categories of saving and investment alternatives? Answer Savings accounts Certificates of deposit Money market accounts Stock investments Bond investments Mutual funds Real estate Commodities Collectibles Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter EVALUATING SAVINGS AND INVESTMENTS Safety and risk Potential return Liquidity Taxes

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter $100 Invested for 20 Years at Different Yields with Annual Compounding

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Investment Pyramid

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are four factors to consider when selecting an investment? Answer Safety Return Liquidity Taxes Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Stock Investments Goals Compare the two major types of stock. Describe the activities involved with buying or selling stock. Identify factors that affect the value of a stock. 19-2

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Key Terms preferred stock common stock stockbroker stock exchange market value

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter TYPES OF STOCK Preferred stock Common stock

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter How does preferred stock differ from common stock? Answer Preferred stock has priority over common stock in the payment of dividends. Investing in preferred stock is less risky than common stock, but preferred stockholders generally have no voting rights within the corporation. Common stock represents general ownership in a corporation and a right to share in its profits. Common stockholders are entitled to one vote per share. Although preferred stockholders are paid first, their dividends usually are limited to a set rate. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter STOCK TRANSACTIONS Using a stockbroker Online investing Stock exchanges Changing stock values

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Example of Stock Market Quotations

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What is the purpose of a stock exchange? Answer The purpose of a stock exchange is to accommodate the buying and selling of securities. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter STOCK SELECTION Stock information sources Economic factors Inflation Interest rates Consumer spending Employment Company factors

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter PROCESS FOR DECIDING STOCK PURCHASES 1.Observe and analyze economic and social trends. 2.Determine industries that will be affected. 3.Identify companies in those industries. 4.Decide whether to buy, sell, or hold the stock of those companies.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter How do various economic factors affect stock prices? Answer Inflation affects stock prices by causing lower spending by consumers, reducing company profits out of which dividends are paid. Falling or rising interest rates can also increase or decrease company profits as the cost of money changes. The employment rate also affects stock prices; when more people are employed, they spend more money on a company’s products and stock prices rise. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Bonds and Mutual Funds Goals List types of government bonds. Describe features of corporate bonds. Describe various types of mutual funds. 19-3

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Key Terms municipal bond corporate bond mutual fund

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter GOVERNMENT BONDS Municipal bonds U.S. savings bonds Other federal securities Federal notes (T-notes) Treasury bills (T-bills) Treasury bonds (T-bonds)

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter List the types of bonds issued by the federal government of the United States. Answer The types of U.S. savings bonds issued by the federal government are Series EE bonds, Series HH bonds, and I bonds. The federal government also issues Treasury bills and Treasury notes. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter CORPORATE BONDS Bond components Bond values

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What affects the value of a bond? Answer The value of a bond is affected by changing interest rates. If the bond’s stated rate is lower than interest rates on similar bonds, investors will want to buy the bond for less than its face value. If the bond’s stated interest rate is higher than interest rates on similar bonds, the seller of the bond will want to receive more than its face value. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter MUTUAL FUNDS A mutual fund is an investment fund set up and managed by companies that receive money from many investors.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter TYPES OF MUTUAL FUNDS Aggressive-growth stock funds Income funds International funds Sector funds Bond funds Balanced funds

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter MUTUAL FUND VALUES Shares of the mutual fund Value of each share Net asset value (NAV) Operating expenses Earnings

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are the main types of mutual funds? Answer The main types of mutual funds are aggressive-growth stock funds, income funds, international funds, sector funds, bond funds, and balanced funds. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Real Estate Investments Goals Describe home buying activities. Explain the benefits of home ownership. Discuss the costs of home ownership. 19-4

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Key Terms real estate mortgage equity assessed value

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter SELECTING HOUSING Renting your residence Owning a mobile home Buying a home Services of real estate agents Other real estate professionals Buying a condominium

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are four available housing alternatives? Answer Renting Owning a mobile home Buying a traditional home Buying a condominium Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter BENEFITS OF HOME OWNERSHIP Tax benefits Increased equity Pride of ownership

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are the main benefits of home ownership? Answer Tax benefits Increased equity Pride of ownership Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter COSTS OF HOME OWNERSHIP Property taxes Interest payments Property insurance Maintenance

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are common costs of home ownership? Answer Common costs of home ownership are property taxes, interest payments, property insurance, and maintenance. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Other Investments Goals Discuss types of commodity investments. Explain the use of collectibles as an investment. 19-5

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter Key Terms commodities futures contract collectibles

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter COMMODITIES AND FUTURES Commodity exchanges Agricultural commodities Gold, silver, and precious metals Currency and financial instruments

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What types of commodities are commonly used with futures contracts? Answer Types of commodities commonly used with futures contracts are agricultural commodities, such as grain and livestock, and precious metals. Checkpoint >>

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter COLLECTIBLES Types of collectibles Collectible values

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter What are common types of collectibles? Answer Common types of collectibles are stamps, coins, sport trading cards, and antiques, as well as unusual items purchased as investments. Checkpoint >>