InvestmentsBrian Wassmuth

How they work

First, What is Interest?

• Interest is ‘The Price Paid for the Use of Money’ -McConnell, Brue

• Remember, money is NOT an economic resource.– It cannot produce goods or services.

Money as a Tool

• However, it is a useful tool that can be used to acquire goods and resources.

•

•ExampleIf you needed to rent a truck to move your company’s supplies from one place to another, you would have to pay someone to use that truck for that time period.

Money as a Tool

Read Passage Pg. 303

• Now, if a business needs money to expand, they can pay someone to use their money for a certain time period.

• What a person pays to rent money from someone is what we call?

INTEREST INTEREST

When to use your MoneyTool

• When borrowing money, it is key for a business to make sure that the return on their investment is greater that the cost.

• Example: – The annual interest rate on a $1000 loan is

10%. – A company anticipates a return of $95 per

year on a $1000 investment– What will the company do?

When to Invest

• The company’s cost of making the $1000 investment is $100 per year. – The company would need a return of more

than 10%, or $100, to benefit from the investment.

• Example: If the interest rate on a $1000 loan drops to 6%, and the Company expects a return of $95 on a $1000 investment, what should the Company do?

Federal Funds Rate

• This is the amount of interest that the Federal Reserve charges banks to borrow money from the government.

• The current Federal Funds Rate is:

5.25%

Importance

• The Importance of the Federal Funds Rate is for a bank or investment firm to be profitable, it must make a return that is higher than the Federal funds rate.

Your Project

• The goal of your investment proposal should be a return of over 5.25%– Why?

• To be sure of a return at this rate, an investor should diversify.

Diversify

• Why Diversify?– So if one investment underperforms or fails,

other investments can take up the slack

• There are many ways to invest your money.

Options• What are some common investment

options that you have:1. Commercial Property investment: retail centers, franchises,

commercial vacant land.2. Residential Property Investment: town homes, condos,

residential homes. 3. Precious Metal : Platinum, Silver, Gold.4. Conservative Investments : Bonds, Treasury Bills, Corporate

Bonds, Savings, CD’s.5. Stock Market : Indexes, Ritz Indexes, Individual Stocks,

Mutual Funds.6. Art and Antiques

• These are the investment options you will need to research and report on. Now go to this Link for a basic overview of investment strategies.

Contents

• Link – Yahoo Finance– http://finance.yahoo.com/education/begin_investing

• Brue, Stanley and McConnell, Campbell. Economics: Principals, Problems, and Policies. 6th Ed. McGraw-Hill. New York 2005

– http://books.google.com/books?id=hObpeG6v1VsC&pg=PA303&lpg=PA303&dq=irving+fisher+time+value+of+money+masseur&source=web&ots=7DcFA9w0sL&sig=TBKYTdBDcU4BwFjToFDdiSLtpzs#PPA261,M1

• Various Google Image searches and Google Book Searches