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9.01 Summarize the various types of short-term and long-term investments.

T009-01.01. Savings and Investments. 9.01 Summarize the various types of short-term and long-term investments. H3. T009-01.02. Investing. Investing-Putting your money to use in order to make money on it. Simple Interest vs. Compound Interest

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9.01 Summarize the various types of short-term and long-term investments.

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

  2. T009-01.02 Investing • 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. H4

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

  4. T009-01.04 Investing Through Banks • 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 H6

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

  6. T009-02.01 Savings and Investments 9.02 Summarize the investing in stocks and bonds. H17

  7. T009-02.02 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. H18

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

  9. T009-02.04 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

  10. T009-02.05 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. H21

  11. T009-02.06 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. H22

  12. T009-02.07 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. H23

  13. T009-02.08 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 H24

  14. T009-02.09 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. H25

  15. T009-02.10 Buying and Selling Stock on NYSE Typical transactions follow these steps: • 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. • Account executive receives your order to sell stock and relays to the brokerage firm’s representative at the stock exchange. • A clerk signals the transaction to a floor broker on the stock exchange floor. H26

  16. T009-02.11 Buying and Selling Stock on NYSE cont. • 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. • 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. H27

  17. T009-02.12 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. H28

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

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

  20. T009-02.15 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. H31

  21. T009-02.16 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. H32

  22. T009-03.01 Savings and Investment 9.03 Summarize other types of investments. H48

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

  24. T009-03.03 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. H50

  25. T009-03.04 Investing in Your Future • 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

  26. T009-03.05 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

  27. T009-03.06 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

  28. T009-03.07 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

  29. T009-03.08 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

  30. T009-03.09 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

  31. T009-03.10 Speculative Investment • Speculator • One that has an unusually high risk. H57

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