1. Investment Strategies and Financial Assets Basic Considerations  Risk-Return – The market is unpredictable therefore the outcome is not certain. Investors demand a higher return for a higher risk.  Investment Objectives – What is your ultimate goal in investing? Examples include college, vacation, unemployment, retirement, etc. Different investments require one to analyze their own circumstances and investment goals  Simplicity – Invest in what you know by following the basics…KISS!  Consistency – Invest over long periods of time Examples include a 401K Plan (tax-deferred investment and savings plan)

2. Financial Assets - Bonds  Bonds are long-term obligations that pay rate of interest over a number of years Coupon – interest Maturity – length of the bond Par Value – principal or total amount borrowed  Bond prices vary depending on interest rates, risk, and supply and demand  Bond Yields – annual interest divided by the purchase price Determined by the interest paid and the purchase price Bonds are NOT insured and the risk varies from company to company Bonds are rated based on financial health, ability to pay interest and principal, and credit history (Standard & Poor’s and Moody’s) Investors use these rating to determine what type of bonds to purchase

3. Characteristics of Financial Assets  Certificates of Deposit (CD’s) – Low cost and attractive to small investors Can be purchased to fit the investor FDIC insured  Corporate Bonds – Cost depends on supply and demand Huge source of corporate funds Investors must consider the risk and length of the bond  Municipal Bonds – Issued by state and local governments Usually very safe and attractive Usually tax-exempt Pay a lower interest rate

4. Characteristics of Financial Assets  Government Savings Bonds Low-denomination, nontransferable bonds usually purchased at a discounted rate Interest is built into redemption price Easy to obtain, very low risk, and usually long- term  Treasury Notes & Bonds Funds borrowed for periods longer than one year Treasury Notes – 2 to 10 year maturity Treasury Bonds – 10 to 30 year maturity Backed by the faith and credit of the U.S. government

5. Characteristics of Financial Assets  Treasury Bills Short-term obligation (13, 26, or 52 weeks) Known as a T-bill Sold at a discount to allow the interest to be built into the maturity value  Individual Retirement Accounts (IRAs) Long-term, nontransferable, tax-sheltered deposits Money deposited is protected from annual income tax – can be liquidated early with a penalty Roth IRA – post tax contributions

6. Markets for Financial Assets  Capital Markets Where money is loaned for more than one year Examples: CD’s, Government Bonds, IRAs  Money Markets Where money is loaned for less than one year Examples: Mutual funds and money market accounts  Primary Markets Only the original issuer can repurchase or redeem a financial asset

7. Markets for Financial Assets  Secondary Markets A financial asset can be sold to someone else Assets can be resold to new owners Liquidation of assets is much quicker