Essential Standard 4.00

Understand the role of finance in business.

Objective 4.03

Understand saving and

investing options for clients.

Topics• Saving and investing basics

• Saving and investing options

• Evaluation factors for savings and investing options

Saving and investing basics

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

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?

Savings Growth

Simple interest

$1,000 at 10%

Year 1:

$1,000 * .10 = $100

$1,000 + $100 = $1,100Year 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 = $1,100Year 2:

$1,100 * .10 = $110

$1,100 + $110 = $1,210

What would the value be at the end of year 3?

Saving and investing options

Saving Options

Savings Plans– Savings account– Certificates of deposit (CDs)– Money market account

Main Categories of Investing Options• Stocks

• Bonds

• Mutual Funds and Exchange-traded Funds

• Real Estate

• Commodities

• Collectibles

Stock Investments

• Two main categories of stock:– Preferred– Common

• What are the major similarities and differences between preferred and common stocks?

• What are stockbrokers?• Stock exchange• What is market value of stock?

Stock Table

A B C D E F G H I

52 Week Sales

High Low Stock Div Yld PE Vol100s

High Low Last Chg

12 1/8 8 AAR .44 6.2 15 6 6 3/4 6 5/8 6 1/2 -1/8

49 1/2 31 1/4 ACF 1.76 7.4 7 477 36 1/4 37 5/8 37 +3/4

26 1/2 16 AMF 1.36 6.7 7 133 17 1/2 17 1/2 17 1/2 -3/8

6 1/8 3 1/8 ARA 2 7 8 10 33 7/8 33 7/8 33 -1

Selecting Stock

Factors that could influence investors in selecting stock:– Economic

• Inflation• Interest rates• Consumer spending• Employment

– Company• Dividend yield• Price-earnings ratio

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%

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%

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?

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

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.

Other Investments

• Real Estate– Advantages– Disadvantages– Examples

• Commodities and futures– Examples

• Collectibles– Examples

Evaluation factors for savings

and investing options

Evaluation Factors

• Safety and risk

• Potential yield

• Liquidity

• Taxes