1. Chapter 11.1 recap questions
Why is investing important for financial growth?
How would our economy be different if there were limited investing?
How do savers, borrowers, and financial intermediaries contribute to the financial system?
Explain each role of a financial intermediary:
Sharing risk
Providing information
Providing liquidity

2. Investment and Risk Chapter 11 section 1 Economics (Bolanos)
RISKY BUSINESS
Investment and Risk
Chapter 11 section 1
Economics (Bolanos)

4. You and risk What is the riskiest thing you have ever done?
How many of you would do any of the following?:
Skydive
Bungee jump
Drive a car faster than 120mph
Ride a bike down Grand with no hands
Eat 5 day old sushi from 7-11

5. Risk vs. Reward
“The Greater the Risk the Greater the Potential Reward”
When investing, the more risk you are willing to take the greater potential return
“No such thing as a free lunch in investing”

6. Types of Risk to consider
Credit Risk/Financial Risk
Inflation Risk
Liquidity Risk
Market Price Risk
Fraud Risk
Do a quick read, first two pages of worksheet posted today on risk!!

7. Credit Risk/Financial Risk

8. Inflation Risk

10. Imagine you just won the Lotto…. $550 million bucks
Imagine you just won the Lotto….$550 million bucks!! You have two options on how to take your winnings, which one would you choose and why?: 1) Full cash payment 2) Payments spread out over 30 years

11. Liquidity Risk

12. Which one has more liquidity risk?VS

13. Market Price Risk

14. Market Price Have you ever collected anything?
When you buy something to sell later what is your hope for the future price?

15. Fraud Risk – “If it’s too good to be true……It probably is!”

16. The Biggest A-hole!!!!

17. How do we lower risk?........DIVERSIFY!!!!

18. “Don’t put all of your eggs in one basket”

19. Return on Investment
When we discuss Interest Rates, we are really talking about what your return will be on your investment.
For every dollar you put in, how much over and above that initial investment will you make in return?
ROI = %change (+ or -)
ROI = (New – Old)/Old x 100

20. Financial Intermediary
Investment
Description
Financial Intermediary
Savings Account
Hold money in account, get $ back anytime, guaranteed interest rates: %
Banks, Credit Unions
CD (Certificate of Deposit)
A long term savings account. Hold money with bank for 3-5 years, guaranteed interest rates: %
Money Market Mutual Fund
Put money into account with bank, pooled money with other customers, buy stocks, get $ back anytime. Flexible interest rate: %
Government Bonds
Issued by government, super safe! Hold $ for years. Guaranteed interest rate: 1.5-3%
Banks, Government
Stocks
Issued by companies seeking cash. Get cash out anytime, highly volatile prices, volatile interest rate: -20% - 100%
Stock Brokers
Real Estate
Homes/Land/apartments. Get $ back when you sell. Market price can go up or down. Return on investment: -20% - 100%
Real Estate Agent/Broker

21. Investing When you want to buy groceries where do you go?
What would farmers/producers of food be likened to in the investment world?
What might we (consumers) be likened to in the investment world?
What might we be able to call a store like Ralph’s? (think of terms from section 1)

22. Markets Man!!!

23. Markets all around me! - Markets link people…stock markets do the same thing

24. Two Main Markets in USA

25. NYSE – Wall St

26. Bulls and Bears

27. Measuring Performance
How have you seen performance measured?
In your daily life? Or at work?
Give me some examples.

28. Measuring Stock Performance

30. Averages of the Street Dow is a 30 company average
Mainly “blue chip” stocks
Mostly based on the NYSE
S&P 500 is a larger index that does a better job of more accurately depicting how market is doing
500 companies
All types of industries

31. Types of Stocks Pay you $ on top of market price Voting Rights
Income vs. Growth
Voting Rights
Preferred vs. Common

32. Quick question
Trading on the margin is like credit card purchases of stocks
If over 70% of the investors on wall street traded on the margin, what might be some pitfalls? THINK HISTORICALLY!!!!!