C12S2: Investment Strategies and Financial Assets  Main Idea:  To invest wisely, investors must identify their goals and analyze the risk and return involved.

C12S2: Investment Strategies and Financial Assets  Key Terms:  Risk  Maturity  Par value  Tax exempt  Current yield  Money market  Primary market  Secondary market

C12S2: Investment Strategies and Financial Assets  Basic Investment Considerations:  The Risk-Return Relationship The higher the risk, the higher the potential return (money) on your investment

C12S2: Investment Strategies and Financial Assets  Basic Investment Considerations:  Investment Objectives Why you are saving affects how you save Where the money comes from will also change the behavior of saving Consider your circumstances before investing

C12S2: Investment Strategies and Financial Assets  Basic Investment Considerations:  Simplicity You don’t have to know everything to invest Stick to what you know  Consistency If you keep investing, you will have better luck

C12S2: Investment Strategies and Financial Assets  Basic Investment Considerations:  401(k) Plans Works as a retirement plan Employees authorize payroll deductions which go into mutual funds

C12S2: Investment Strategies and Financial Assets  Bonds as Financial Assets  Used to borrow funds for long periods  Bond Components: Coupon Maturity Par value  Bond Prices Must consider the life of the business before buying a bond

C12S2: Investment Strategies and Financial Assets  Bonds Ratings  Credit system rates companies for bonds and how likely it is that they will pay off Classifications: Page 322, fig. 12.5

C12S2: Investment Strategies and Financial Assets  Financial Assets and Their Characteristics  Certificates of Deposit Loans to financial institutions Penalties for early withdrawal Simple, safe investment  Corporate Bonds Prices vary, risks vary Junk bonds have low ratings, high rewards Usually long-term investments

C12S2: Investment Strategies and Financial Assets  Financial Assets and Their Characteristics  Municipal Bonds Called ‘munis’ Issued by state and local governments Tax-exempt way to invest money  Federal Savings Bonds Bought at half their face value Interest is added to the value until it reaches the date it can be redeemed Very safe investment, but slow and small returns

C12S2: Investment Strategies and Financial Assets  Financial Assets and Their Characteristics  Treasury Notes and Bonds Issued when the gov’t borrows money for over a year Notes: Maturity 2-10 years Bonds: Maturity years Safest investments  Treasury Bills T-Bills pay after a number of weeks  IRAs Employees can set these up to help with retirement

C12S2: Investment Strategies and Financial Assets  Markets for Financial Assets  Capital Markets Money is loaned for more than one year  Money Market Money is loaned for less than one year

C12S2: Investment Strategies and Financial Assets  Markets for Financial Assets  Primary Markets Nontransferable investments  Secondary Markets Existing assets can be resold to new owners