Essential Standard 4.00

1. Essential Standard 4.00 Understand the role of finance in business.

2. Objective 4.03 Understand saving and investing options for clients.

3. Topics • Saving and investing basics • Saving and investing options • Evaluation factors for savings and investing options

4. Saving and investing basics

5. Saving and Investing Basics • Reasons money is borrowed by the following: • Individuals • Businesses • Government • What is saving? • What is investing? • Saving influences on economic activity

6. Saving and Investing Basics continued • Main goals of savers and investors • Growth of savings • Simple interest • Compound interest • Impact of compound frequency on savings growth rate • How is simple interest calculated? • How is compound interest calculated?

7. Savings Growth 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?

8. Saving and investing options

9. Saving Options Savings Plans • Savings account • Certificates of deposit (CDs) • Money market account

10. Main Categories of Investing Options • Stocks • Bonds • Mutual Funds and Exchange-traded Funds • Real Estate • Commodities • Collectibles

11. Stock Investments • Two main categories of stock: • Preferred • Common • What are the major similarities and differences between preferred and common stocks? • What are stockbrokers? • What is the purpose of a stock exchange? • What is market value of stock?

12. Stock Table

13. Selecting Stock Factors that could influence investors in selecting stock: • Economic • Inflation • Interest rates • Consumer spending • Employment • Company • Dividend yield • Price-earnings ratio

14. Yield Calculations • 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%

15. Yield Calculations • 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%

16. Bond Investments • What is a bond? • Main Categories of Bonds • Government bonds • Municipal bonds • U.S. savings bonds • Treasury bills and notes • Corporate bonds • Lenders versus owners as it relates to investing in a company’s stocks and bonds • How does stated interest rate impact the value of a bond?

17. Mutual Funds • Companies’ major tasks in assisting investors of mutual funds • Some examples of mutual fund categories • Aggressive-growth stock funds • Income funds • International funds • Sector funds • Bond funds • Balanced funds

18. Exchange-traded Fund (ETF) An exchange-traded fund (ETF) is a portfolio of stocks, bonds or other investments that trade on a stock exchange like regular stock.

19. Other Investments • Real Estate • Advantages • Disadvantages • Examples • Commodities and futures • Examples • Collectibles • Examples

20. Evaluation factors for savings and investing options

21. Evaluation Factors • Safety and risk • Potential yield • Liquidity • Taxes