9.01

Summarize the various types of

short-term and long-term investments.

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InvestingInvesting• 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.

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• Savings is money put aside for future use.

• Most common reasons to save are:

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–Major purchases

–Emergencies•Saves money for a “rainy day”

–Retirement

Investing Through BanksT009-01.04

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•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

• Money Market Fund

Investing Through BanksContinued

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H7

–Kind of mutual fund, or pool of money, put into a variety of short-term debt by business and government.

9.02 Summarize the investing in stocks and bonds.

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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.

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Bond Terms

• Face Value– Amount being borrowed by the seller of the

bond.

• Coupon Rate– Rate of interest on the bond.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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.

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Stock Exchanges

• Marketplace where brokers who represent investors meet to buy and sell securities.

• Examples:– NYSE– NASDAQ– AMEX– Exchanges in San Francisco, Boston, Chicago

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Types of Markets

• Bull Market– Occurs when investors are optimistic about the

economy.

• Bear Market– Occurs when investors are pessimistic about the

economy.

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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.

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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.

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9.03 Summarize other types of investments.

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Investing Through Insurance

• Life Insurance– Cash-value insurance provides both savings and

death benefits.

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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.

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• Annuity– Amount of money that an insurance company

will pay at definite intervals to a person who has previously deposited money with the company.

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Investing in Your FutureT009-03.04

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.

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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

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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.

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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.

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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.

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Speculative Investment

• Speculator– One that has an unusually high risk.

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