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Transcript of 1. Page 3 in Packet 2. Playspent.org * Can you survive for a month? * Good Luck!
*Savings/Investing Activity
1.Page 3 in Packet
2.Playspent.org
*Can you survive for a month?*Good Luck!
Exploring Business & Marketing*UNIT 5:
SAVING & INVESTING
CCRS – Math
(24-27) Solve multistep arithmetic problems that involve planning or converting units of measure
Manipulate data from tables and graphs
Compute straightforward probabilities for common situations
(28-32) Interpret and use information from figures, tables, and graphs
Unit Objectives/Learning Goals:Managing Finances and Budgeting: • Develop and evaluate a spending/savings plan.
Saving and Investing: • Evaluate savings and investment options to
meet short- and long-term goals.
*Why Have a Savings Plan?
*Savings Plan: putting money aside in a systematic way to help reach a financial goal.
*Savings plans are used to buy the goods and services we need and want.
*Also used for future expenses and emergencies.
*Using Savings for Investing
*Investing: using your savings to earn more money.
*In order to invest your money, you must have money set aside in order to do so.
*CAUTION: Investments are not guaranteed to make $$$$$ (NOT FDIC INSURED)
*Making Savings Work for You!
*Interest: money you receive for letting others use your money.
*Savings put to work to earn interest is a form of investment.
*See The Cost of Waiting Handout
Retirement Calculator
*Earning Interest
*Simple Interest: computed only on the amount saved.
*Example: David saves $50 a month. In a year his savings will be $600. He earns 10% annual interest. *After year 1, he will have made $60. - - for doing nothing!
*Earning Interest
*Compound Interest: computed on the amount saved plus the interest previously entered.
*Interest can be compounded daily, monthly, quarterly, semiannually, or annually Which
Grows faster the savings rate or the investing rate?
*Selecting an Investment
*When deciding how to invest your savings, three main factors should be considered.
*Safety
*Rate of Return (Yield)
*Liquidity
*Selecting a Savings Plan
*Safety: assurance that the money you have invested will be returned to you.
*How safe are the following?*Savings Account at Local Bank
*Purchasing a House
*Investing in a Stock
*Selecting a Savings Plan
*Rate of Return (Yield): the percentage of interest that will be added to your savings over a period of time.
*How much will you “get back” in return for the invested amount of money.
*Usually higher rates of return and greater risks of loss go together.
*Selecting a Savings Plan
*Liquidity: the ease with which an investment can be changed into cash without losing any of its value.
*When an investment can be turned into money quickly, it is said to be a liquid investment.*Compare $5,000 in a savings account in a bank to a piece of land that you bought for $5,000.*Which is more of a liquid investment?
*The Rule of 72
*The Rule of 72 gives you the answer to the question of how long it will take to double your money at various rates of return.Interest Rate Years to
Double
1% 72
2% 36
3% 24
4% 18
5% 14.5
6% 12
7% 10.3
8% 9
9% 8
10% 7.2
11% 6.5
12% 6
15% 4.8
Do It…
My Lifemap – Page 2Exploring Business – Page 3
Unit 5, Part 2: Stock as an Investment with your Savings!
*EXPLORING BUSINESS
*Review: Investments
*Pull Out Life Maps… What happens as your plans get further away…
*Your need for savings will increase as your goals become more expensive.
*Investing at a young age can lead to better security and economic independence later in life.
*Investing in Stocks
*Why Invest in Stocks?
*Become part owner in a corporation!
*Earn a high rate of return.*Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7% *Over past 20 years, American Stocks have had an annual return of 13%!
*Investing in Stocks
*Ownership of Stocks
*Ownership in a corporation is shown in printed form, called a stock certificate.
*Investing in Stocks
*Market Value: the price at which a share of stock can be bought and sold for in the market.
*What affects price of stock?*How is the business doing? Financial reports, business releases.
*State of Economy. (Which phase of business cycle?)
*Political Developments
*How Do I Make $$$ In The Stock Market?
*Buy Pepsi today at $85.80 Buy 100 shares.
$8,580.
*Imagine 2 years from now…(April 2017)
* Pepsi’s stock price on April 2017 is now $105.80!!
*You sell your 100 shares now valued at $10,580!
*You have essentially earned $2,000! (Amount Buy – Amount Sold)
*How Do I Lose $$$ In The Stock Market?
*Buy Pepsi today at $85.80. Buy 100 shares.
$8,580. *Imagine 2 years from now…(April 2017)
* Pepsi’s stock price on April 2017 is now $61.80!!
*You sell your 100 shares now valued at $6,180!
*You have essentially lost $2,400! (Amount Buy – Amount Sold)
*Selecting Stock Investments
*There is no secret or special formula.*It requires: hard work and research.
*Four-Step Process for Deciding on Stocks*Observe and Analyze Economic and Social Trends
*Determine Industries that will be affected*Identify Companies in those industries*Decide whether to buy, sell or hold the stock of those companies.
*Review: Investments
*Your need for savings will increase as your goals become more expensive.
*Investing at a young age can lead to better security and economic independence later in life.
*Home Work…
*Article:
Stock Ownership: A Delicious Topic!
Pages 15, 16, & 17
Answer the 7 questions on page 17.
*Where are Stocks Sold?
*NYSE: New York Stock Exchange
*AMEX: American Stock Exchange
*Nasdaq: National Association of Securities Dealers Automated Quotations
*NYSE, AMEX, Nasdaq
*Buying Stock = “Trade” when the best bid meets the lowest offer to sell.
*Stock prices are determined by supply and demand.
*Stock Exchanges- STOCK Brokers
*Compare a Stock Exchange to Ebay…
*Ebay and Stock Exchanges = Auction sites
*Seller puts an item up for sale, and several people compete to buy the same item.
*“Going Public”
*Go Public: the process a company takes to offer shares of stock to the public for the first time.
*Initial Public Offering (IPO): the first sale of a corporation’s public shares.
*Why “Go Public”
*Businesses offer stock for many reasons, that include:*Raise Capital*Expand Operations/Create Jobs*Fund Research and Development of Products
*Pay Off Debt*Provide Employees with Benefits*Develop Marketing Strategies*Generate Additional Revenue
*Selecting Stocks
*In selecting a specific stock to buy, you should learn something about the business record of the corporation.
*There is no secret or special formula.
*It requires: hard work and research.
*The opportunity to earn a high rate of return attracts people to invest in stocks.
*Selecting Stocks
*When considering stocks, ask the following questions:
*Has the company been profitable over a period of years?
*Does the company have growth potential in coming years?
*How does the company compare with others in its industry?
READY TO INVEST?
*YOUR TURN, SELECTING STOCKS
*Page 22 in PACKET finance.yahoo.com
*Pick 2 competing companies from 3 industries…
Examples:
*Coke, Pepsi - Beverages
*Microsoft, apple – Computers
*Mcdonalds vs Burger King – Fast Food
*STOCK OWNERSHIP- TOAD!
*READ OUTLOUD in your Groups (rows). Each person reads a Paragraph.
*As a group, complete the questions on page 20
*Identifying Important Figures in Selecting
Stock
*Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise.
*When evaluating stocks, revenue growth serves as an indication of a company's health.
*Identifying Important Figures in Selecting
Stock
*P/E Ratio: Market Value per Share/Earnings per Share
*it shows how much investors are willing to pay per dollar of earnings. It shows value.
*In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry
*Identifying Important Figures in Selecting
Stock
52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks).
High Low CurrentCokePepsi
*Identifying Important Figures in Selecting
Stock
*Earnings per Share:
*= Net Income – Dividends / Average Outstanding Shares
*EPS indicates the profitability of a company.
*Your turn, INVESTOPEDIA
*Time to INVEST your money. You choose 3 of your six companies to invest in…plus one more for fun..
*INVESTOPEDIA.com
*Follow instructions on page 24
*Review Investments
*Investopedia Review
*Check Pg 22
*So how do we compare stocks to determine better buy?
*Pepsi – PEP Coke-
*Which is Better Investment
*Investing in Stocks
*What are the three ways to determine if now is the time to purchase a stock
*P/E Ratio
*52-Week High Low
*EPS
*Need Help..like this stuff. Watch Jim Cramer. Playbook
Unit 5: Investments
Investing in Bonds
*EXPLORING BUSINESS & MARKETING
http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4
*What is a Bond?
*BOND: a certificate promising to pay a specific amount of money at a stated interest rate on a specific maturity (due) date.
*A bond is basically a fancy IOU.
*Bonds Explained
*Investing in Bonds
*Organizations such as the federal government, corporations, churches, and schools issue bonds to raise money.
*When these organizations issue bonds, they are borrowing money from the people who purchase the bonds.
*Types of Bonds
*Government Bond: bonds issued by government to fund public services.*Considered very safe. The risk of the government not returning your money is very low. Rate of return is lower.
*Corporate Bond: a bond sold by a corporation.*Depends on company, but the risk is higher than government bonds, therefore having an overall higher rate of return.
*Government Bonds
*Why would the government need to borrow money?
*Defense
*Buildings
*Employees*To fund any and all public services.
*Different Types of Government Bonds
*All government bonds use the money to fund public services.
*Different types of bonds are for different uses
*Savings Bonds: issued by federal government for national services.
*Municipal Bonds: issued by state and local governments for state and local services. “Muni’s”
*Government Bonds
*Municipal Bonds
*Usually sold in amounts of $1,000.
*Considered very safe investments.
*Money borrowed is for local or state projects.*Road Construction, Schools, Hospitals, etc.
*Government Bonds
*United States Savings Bonds
*Series EE Bonds ($50 - $10,000): bought at half its face value.*A $50 bond costs $25. The bond will earn interest for a specific period of time.
*Savings Bonds: Example
*Series EE Savings Bonds
*Interest Earned: difference between the purchase price and redemption value. *Interest earned is determined by the length of time the bond is held.
*Savings bonds are purchased at banks, through payroll, and over the Internet
*You can “cash” your savings bonds at anytime, but the longer you hold the bond, the more interest you will make.
Unit 5: Bonds
Corporate Bonds
*EXPLORING BUSINESS
*Bonds: Review
*Everyone needs to borrow money
*You may need to borrow money for lunch or a soda.
*Businesses borrow money as well, but unlike you and me, it is awfully difficult to get borrowed money just with the promise to repay it the next day!
*Corporate Bonds
*Businesses have to agree not only to pay back the amount they borrowed, but also to pay a little extra in the form of a fee (interest) for borrowing the money.
*Corporate Bonds: a loan sold to the public.*Bonds are sold just like stock – through public securities markets.
*Corporate Bonds
*Companies issue corporate bonds to raise money for a variety of purposes.
*Building a new plant
*Purchasing Equipment
*Expanding Business
*Bonds: Review
*When you buy a corporate bond, you lend money to the company that issued the bond.
*In exchange, the company promises to return your money (principal)on a specified maturity date.
*Until that date, the company usually pays you a stated rate of interest, generally semiannually (twice a year).
*Bonds: Review
*For example:
*Let’s say you purchased a Corporate Bond from General Motors. *The bond is a 10 Year, $1,000 bond.
*The annual interest rate is 8%, paid semi-annually for 10 years. *You will collect $80 a year, for 10 years. ($800)
*After 10 Years, General Motors will return your $1,000.*You will have started with $1,000 and ended with
$1,800.
*Corporate Bonds
*Corporate bonds tend to carry higher interest rates than government bonds because there is a risk that the company could go bankrupt.
*Unlike the government, which can just print more money if it really needs it!
*Bonds: Terminology
*Par Value: the amount of money loaned by the investor. Also known as principal amount.
*Maturity Date: the date when the bond issuer has to return the principal amount to the lender (investor).
*Bond Yield: the return an investor would earn if a bond was purchased and held to maturity.
*Corporate Bonds
*Let’s return to our example from before:*You purchased a Corporate Bond from General Motors.
*The bond is a 10 Year, $1,000 bond.*The annual interest rate is 8%, paid semi-annually for 10 years. *You will collect $80 a year, for 10 years. ($800)
*Par Value = $1,000*Maturity Date = November 2024*Yield = 8%
*Corporate Bonds
*Sometimes companies have a hard time selling their bonds.*What they can do is lower the Par Value or price of the bond.
*In our example from before, if General Motors was having a difficult time selling their bonds, they could sell a $1,000 bond for $950. The bond is still worth $1,000 – but you can buy at a discount!
*How Do I Know If I Can Trust a Company?
*Remember, with Corporate Bonds there is always a chance your money may not be repaid….So, how do you know if you can trust a company to repay you?
*Lucky for you, there are Bond Ratings.
*Rating Bonds
*Bond Ratings: developed to indicate how financially stable the issuer of the bonds is.
*Basically, the higher the rating, the higher quality of the bond, and the more likely you will get your money back on the maturity date.
*Moody’s Bond Ratings
*Aaa Exceptional security. (3%)*Aa Excellent security.*A Good security.*Baa Adequate security.*Ba Questionable security.*B Poor security.*Caa Very poor security.*Ca Extremely poor security.*C Lowest security. (10%)
Ratin
g
Inte
rest
Rate
*Risk and Return
*Corporate bonds that carry a higher rating, will have a lower interest rate.
*You will likely receive all interest payments and principal.
*If a bond is rated Ba, B, Caa, Ca, or C it is considered a “Junk Bond”*Junk Bond: called junk bonds, because the credit quality of the business is not high.
*Junk Bonds in general, carry very high interest rates!
*Corporate Bond Worksheet
*Take a look at pg 46…we are going to look at calculating interest payments for different rated bonds.
*Bond 1
*Interest payments=$30
*Total Interest Paid=$600
*Examples of Bond Prices
*Bond search
*ACCO….Who are they?
*Why risky? (10%)
*ATT (4.45%)
* Why not as risky?
Mutual Funds
*Exploring Business
http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4
*Mutual Fund
*Mutual Funds:Are a collection of stock funds set up and managed by investment companies
*Multiple investors deposit money into account
*Account Managers then purchase a wide variety of stocks and bonds.
Stocks
*Ownership
*Mutual Fund investors own shares of the FUND itself, not individual stocks
*Part of the dividend received from the fund, is used to pay for operating expenses
*Types of Funds
*Growth - Designed to build wealth over time
*Blend Funds-Combination of Growth and Value*Value Funds-prices are low relative to the company's earnings, dividends
*Income-invest in interest-paying bonds and, to a limited extent, dividend-paying stocks
*Types of Funds
*Types of Funds
*Within Each Category of Fund, investment companies offer many options of individual Mutual Funds to purchase
*Each has their own Risk/potential profit scale.
*Types of Funds
*Putnam Investments... Growth Fund options
*Sample Funds
*Health Sciences Trust -The fund seeks to capitalize on the strength and diversity of companies within the health-care sector. The fund seeks companies that offer strong long-term growth prospects, regardless of their size. Holdings encompass an array of industries, including pharmaceuticals, health-care services, and biotechnology.
*OTC & Emerging Growth Fund -The fund targets small and midsize companies believed to have exceptionally strong growth potential. Its portfolio may include stocks that are traded in the over-the-counter market (OTC) and stocks of emerging-growth companies listed on securities exchanges. The fund's focus on rapidly growing small and midsize companies makes it Putnam's most aggressive growth product.
*Mutual Funds and ETFS???