1. Financial Algebra
27 April 2018

2. announcements I have physical copies of your last homework assignment
It is due by May 8th
I will not be proctoring next week
I will be finishing this chapter (by Friday)
Grades are mostly updated – I still have to put in the bank accounts grade, so don’t panic
Take-home quizzes are in and some people owe me make-ups
I won’t be here on Monday…but there will be copies of make-up assignments for those that need them

3. announcements Your last take-home quiz on Friday at the end of class
It will be due by May 8th (Seniors, this is the day of your final)
You will not need all of that time (it’s only 10 questions long)
Expect a study guide and/or Quizlet to be prepared for your final exam
Both should be done by this evening
A link to it will be posted on the website as soon as it is finished
Hard copies will be available on Monday

4. Key terms and vocabulary
Commission
Diversification
Federal agency bond
Junk bond
Municipal bond
Mutual fund
Treasury bonds

5. bonds
As we covered from previous lectures, bonds are promises to repay a certain amount of money at some point in the future
But there are many different types of bonds
Treasury bonds
Municipal bonds
Federal agency bonds
Corporate bonds
Each bond type has risks and advantages

6. bonds
Treasury bonds: These are issued by the US Treasury to finance the debt of the United States government.
Risk is minimal since they are backed by the government
Interest earned on these bonds are subject to federal tax, but exempt from state/local taxes
Investors can also buy treasury bonds directly from
Federal agency bonds: These types of bonds are specifically meant to encourage home ownership
These bonds are issued by federal agencies such as the Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae) to fund projects
The bond proceeds are used to buy mortgages to encourage home ownership

7. bonds
Municipal bonds: These are bonds issued by state and local governments to finance large public projects such as water and sewer systems.
Risk is minimal, but default (non-payment) is possible
Investors do not pay federal tax on the interest and can be exempt from state/local taxes if they live locally
Corporate bonds: These types of bonds are issued by large firms
The degree of risk depends on the strength of the company
Companies with a solid financial position will have a low risk of default
Bonds sold by corporations with the highest risk are called “junk bonds”.

8. Mutual funds
Mutual funds: These organizations sell shares to investors in order to collect a pool of money that is then used to buy various investments
An investment team normally oversees the funds
The shareholders see an increase or decrease in the value of their shares in the mutual fund based on the overall performance of the fund’s investments
Investors can purchase shares either directly from the companies, or do business through brokers
These accounts provide the benefit a of allowing your money to grow tax free until you retire
Diversification: The process of investing in multiple investments.
Diversifying investments reduces risk because failure of one company will not significantly impact the entire amount invested