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Today’s Schedule – 11/2
• PPT: Saving & Investing Part 1• WS: Calculating Interest Rates• Homework–Read 21.1
Importance of Saving
At 5% interest rate in 10 years:$7/wk = $4,366$14/wk = $8,732$21/wk = $13,098$28/wk= $17,464$35/wk = $21,830
Doubling Your Money- Rule of 72
72/Interest Rate= Years to Double Your Money
72/Years to Double Money = Interest Rate Needed
Investing• The act of redirecting resources from
being used today to create benefits for the future–Use of assets to earn income/profit
• Creates wealth and economic growth–Business investment -> profits ->
business growth ->job growth -> higher income ->more $ to spend
Some Definitions
• Financial System- Savers & borrowers; allows transfers between them• Financial Assets- Claims of
property/income• Financial Intermediary- Institution that
moves money between saver and borrower
Types of Financial Intermediaries• Banks, Savings & Loans, Credit Unions–Take deposits from savers and lend them
out• Finance Companies –Lend money to individuals and businesses–High risk = High interest rate
• Mutual Funds–Pool savings of many people to invest in a
variety of financial assets
Types of Financial Intermediaries• Life Insurance Companies–Provides financial protection–Individuals pay “premiums” which is
loaned out• Pension Funds–Income received once retired–Contribution made by both employee
and employer–Money is invested to make profit
Risk
• Important to diversify your investments–Spread it out to reduce the risk
• Financial intermediaries help you to do this
Information
• Financial intermediaries provide information on:–Portfolios- tells you how financial assets
are performing–Prospectus- contains the portfolio and
provides information to potential investors
Liquidity
• Investing with a financial intermediary makes it easy to move your money around
Return
• The money received above and beyond the sum of money initially invested• Savings account or CD?–Which would have higher interest rate?–Which would have most fluidity?
• Typically, the higher the potential return, the higher the risk