3.  Saving and investing basics  Saving and investing options  Evaluation factors for savings and investing options

5.  Reasons money is borrowed by the following: › Individuals  Cars and Houses › Businesses  Operate or Expand › Government  Improve schools or transportation

6.  Saving: › Putting money away for future use  Investing: › Using savings to earn more money for future financial security  Saving influences on economic activity: › Making more money available to be used by individuals, businesses, and the government

7.  Main goals of savers and investors: › Making available income and long-term growth  Growth of savings › Simple interest › Compound interest  Impact of compound frequency on savings growth rate: › The more times that interest is compounded the more growth of savings.

8.  How is simple interest calculated? › Simple interest is calculated by using the formula ( P =Principal, R =Rate, T =Time and I =Interest Rate) › I=P * R * T.  How is compound interest calculated? › Compound interest is calculated by using the formula ( A =Amount, P =Principal amount/the initial amount you borrow or deposit, r =Annual rate of interest and n =Number of times interest is compounded) › A=P(1+r/n)nt.

9. Simple interest $1,000 at 10% Year 1: $1,000 *.10 = $100 $1,000 + $100 = $1,100 Year 2: $1,000 *.10 = $100 $1,100 + $100 = $1,200 What would the value be at the end of year 3? Compound interest $1,000 at 10% Year 1: $1,000 *.10 = $100 $1,000 + $100 = $1,100 Year 2: $1,100 *.10 = $110 $1,100 + $110 = $1,210 What would the value be at the end of year 3?

11. Savings Plans › Savings account  Allows low or zero balance, deposit or withdrawals anytime and interest to be earned. Usually withdrawals are allowed without penalties. › Certificates of deposit (CDs)  Requires a minimum deposit, money to remain deposited for a period of time without penalties. Penalties may be assessed if money is withdrawn before specified time. › Money market account  Requires a minimum deposit and interest is earned based on government and corporate securities. Usually withdrawals are allowed without penalties.

12.  Stocks  Bonds  Mutual Funds and Exchange-traded Funds  Real Estate  Commodities  Collectibles

13.  Two main categories of stock: › Preferred › Common  What are the major similarities and differences between preferred and common stocks? › Similarities:  Investment risks and pay dividends › Differences:  Preferred stock is less risky than common stock.

14.  Stockbrokers › Buy and sell stock and bonds at a set price for a commission for stockholders.  Stock exchange › Where the trading of securities take place.  What is market value of stock? › The price for which a share of stock can be purchased.

15. ABCDEFGHI 52 WeekSales HighLowStockDivYldPEVol 100s HighLowLastChg 12 1/8 8AAR.446.215 6 6 3/4 6 5/8 6 1/2-1/8 49 1/231 1/4ACF1.767.4 747736 1/437 5/8 37+3/4 26 1/216AMF1.366.7 713317 1/2 -3/8 6 1/8 3 1/8ARA 2 7 8 1033 7/8 33

16. Factors that could influence investors in selecting stock: › Economic  Inflation  Interest rates  Consumer spending  Employment › Company  Dividend yield  Price-earnings ratio

17.  Yield is usually calculated in the following way: current value – original value = yield original value  Current value=closing price for the day  Original price=price paid for stock  Yield=Interest earned  For example: a stock is bought at $40 and valued at $43: $43 – $40 $40 yield = 7.5%

18.  Dividends also may be added to the calculation.  For example: a stock is bought at $40 and sold at $43, but also earned a $2 dividend during that time: $43 + $2 – $40 $40 yield = 12.5%

19.  Bond: › A promissory note to pay back a specified amount of money at a stated rate on a specific date.  Main Categories of Bonds › Government bonds  Municipal bonds  U.S. savings bonds  Treasury bills and notes › Corporate bonds  Purchasing corporate bonds is a means of loaning money to a company.

20.  How does stated interest rate impact the value of a bond? › The stated interest rate usually determines the price investors want to pay for a bond. If a bond’s stated interest rate is lower than similar ones, investors will most likely want to pay less for the bond. If the stated interest rate is higher than similar ones, the seller will most likely want to be paid more than its face value.

21.  Companies’ major tasks in assisting investors of mutual funds by studying companies stocks and bonds, and then buying a variety of stocks and bonds to sell.  Some examples of mutual fund categories › Aggressive-growth stock funds  Look for quick growth, but also have an higher risk than other stock. › Income funds  Concentrate on stocks that pay regular dividends.

22. › International funds  Invest in a variety of company stock around the world. › Sector funds  Purchase stocks of companies in the same industry. › Bond funds  Concentrate in corporate bonds. › Balanced funds  Invest in both stocks and bonds.

23.  Exchange-traded fund (ETF): › A portfolio of stocks, bonds or other investments that trade on a stock exchange like regular stock.

24.  Real Estate › Advantages  Tax Benefits  Increased Equity  Pride of Ownership › Disadvantages  Property Taxes  Interest Payments  Commodities and futures › Grain, livestock, precious metals (like gold)

25. Evaluation Factors for Savings and Investing Options

26.  Safety and risk  Potential yield  Liquidity  Taxes