2. 9.01 Summarize the various types of short-term and long-term investments. T009-01.01 H3

3. Investing Putting your money to use in order to make money on it. Simple Interest vs. Compound Interest –Simple – interest that is computed only on the amount saved. –Compound – interest that is computed on the amount saved plus interest previously earned. Securities refers to bonds, stocks, and other documents sold by corporations and governments to raise large sums of money. T009-01.02 H4

4. Savings is money put aside for future use. Most common reasons to save are: T009-01.03 H5 –Major purchases –Emergencies Saves money for a “rainy day” –Retirement

5. Investing Through Banks T009-01.04 H6 Savings Account –Simplest form of saving –Offered by all institutions (banks, credit unions, etc.) –Generally, a low minimum deposit is required –Interest is low and varies from institution to institution Certificate of Deposit –Requires a minimum deposit for a minimum amount of time –Interest rates are higher than a savings account

6. Money Market Fund Investing Through Banks Continued T009-01.05 H7 –Kind of mutual fund, or pool of money, put into a variety of short-term debt by business and government.

7. 9.02 Summarize the investing in stocks and bonds. T009-02.01 H17

8. Investing in Bonds Bonds –Promise to pay a definite amount of money at a stated interest rate on a specified maturity date. Bondholder –Individual who lends money to a corporation. T009-02.02 H18

9. Bond Terms Face Value –Amount being borrowed by the seller of the bond. Coupon Rate –Rate of interest on the bond. T009-02.03 H19

10. Types of Bonds Corporate Bonds –Issued by corporations –Used to finance buildings and equipment. Municipal Bonds –Issued by local and state governments. –Used to finance schools, roads, airports, etc. H20 T009-02.04

11. Types of Bonds Treasury Bonds –Issued by federal government. –Known as Savings or Federal Bonds –Types: Series EE Bonds –Cost half the face value. –After a specified number of years the bond becomes worth the face value. Treasury Bills –Issued for three months to one year. Treasury Notes –Issued for two to ten years. Treasury Bonds –Issued for ten or more years. T009-02.05 H21

12. Investing in Stocks Stock –Share of ownership in a business. Stock Certificate –Proof of ownership in a corporation Market Value –Price at which a stock can be bought or sold. Dividends –Part of profits shared with stockholders. T009-02.06 H22

13. Types of Stocks Preferred –Priority over common stockholders in the payment of dividends. –No voting rights. Common –General ownership in a corporation and a right to share in the corporation’s profits –Right to vote at shareholder meetings One vote per share. T009-02.07 H23

14. Reading a Stock Quotation Table 52 Week Hi – Highest price during previous 52 weeks 52 Week Lo – Lowest price during previous 52 weeks Stock – Company name abbreviated Stock Symbol – Ticker symbol Dividend – Current dividend in dollars per share based on the last dividend paid Yield – Dividend yield based on the current selling prices per share T009-02.08 H24

15. Reading a Stock Quotation Table PE – (Price/Earnings ratio, comparing the price of the stock with earnings per share). Volume – Number of shares traded. High – Highest price during the day. Low – Lowest price during the day. Close – Closing price for the day. Net Change – Change in the closing price today compared with closing price on the previous day. T009-02.09 H25

16. 2.Floor broker (buyer) goes to the trading post at which time this specific stock is traded. It is traded with the floor broker (seller) who has an order to buy. T009-02.10 H26 Typical transactions follow these steps: 1.Account executive receives your order to sell stock and relays to the brokerage firm’s representative at the stock exchange. 3.A clerk signals the transaction to a floor broker on the stock exchange floor.

17. T009-02.11 H27 5.The sale appears on the price board, and a confirmation is relayed back to your account executive, who then notifies you of the completed transaction. 4.Floor broker (buyer) signals the transaction back to the clerk. Then a floor reporter – an employee of the exchange – collects the information about the transaction and inputs it into the ticker system.

18. Brokerage Firm Sells stocks for consumers Broker –Person who acts as a go between for buyers and sellers of securities. Commission –Fee charged by a brokerage firm for the buying and/or selling of a security. T009-02.12 H28

19. Stock Exchanges Marketplace where brokers who represent investors meet to buy and sell securities. Examples: –NYSE –NASDAQ –AMEX –Exchanges in San Francisco, Boston, Chicago T009-02.13 H29

20. Types of Markets Bull Market –Occurs when investors are optimistic about the economy. Bear Market –Occurs when investors are pessimistic about the economy. T009-02.14 H30

21. Numerical Measures for a Corporation Current Yield –Annual dividend divided by current market value. Price/Earnings Ratio –Price of one share of stock divided by the earnings per share. T009-02.15 H31

22. Selling a Stock Total Return –Calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment. Capital Gains –Profit from the sale of an asset such as stocks, bonds, or real estate. Taxed as income. Capital Loss –Sale of an investment for less than its purchase price. Subtract up to $3,000 in losses from your income. T009-02.16 H32

23. 9.03 Summarize other types of investments. T009-03.01 H48

24. Investing Through Insurance Life Insurance –Cash-value insurance provides both savings and death benefits. T009-03.02 H49

25. Investing in Your Future Pension –Series of regular payments made to a retired worker under an organized plan. Individual Retirement Account (IRA) –Tax sheltered retirement plan in which people can annually invest earnings. –Types: 401k or 403b contributions are tax deductible and funds are taxed as regular income when they are withdrawn after age 59 ½. Roth IRA contributions are not tax deductible, but investment gains and all funds on which taxes are prepaid are tax free when they are withdrawn after age 59 ½. T009-03.03 H50

26. Annuity –Amount of money that an insurance company will pay at definite intervals to a person who has previously deposited money with the company. H51 Investing in Your Future T009-03.04

27. Investing Through Other Sources Real Estate –Land and anything that is attached to it. –Mortgage Legal document giving the lender a claim against the property. –Home Equity Difference between the price at which you could currently sell your house and the amount owed on the mortgage. Appreciation – general increase in value of a property. Depreciation – general decrease in value of a property. H52 T009-03.05

28. Investing Through Other Sources Types of Property –Undeveloped Property (Land) Unused land intended only for investment purposes. –Commercial Property Land and buildings that produce lease or rental income. –Real Estate Investment Trusts (REITs) Works like a mutual fund. Combines funds to invest in real estate. H53 T009-03.06

29. Collectibles Items of personal interest to collectors. Rare coins, works of art, antiques, stamps, rare books, comic books, sports memorabilia, rugs, ceramics, paintings, and other items that appeal to collector and investors. H54 T009-03.07

30. Commodities Include grain, livestock, precious metals, currency, and financial instruments. Futures –Commodity contract purchased in anticipation of higher market prices for the commodity in the near future. H55 T009-03.08

31. Investing With Others Investment Clubs –Small group of people who organize to study stocks and to invest their money. Mutual Fund –Created by an investment company that raises money from many shareholders and invests it in a variety of stocks. Limit risk by diversifying investment. H56 T009-03.09

32. Speculative Investment Speculator –One that has an unusually high risk. H57 T009-03.10