Chapter 11 Saving and Investing Options

What Are Low-Risk Savings Options? Liquid savings include cash or investments that can be changed into cash quickly. Savings and checking accounts are liquid. Illiquid investments cannot be converted to cash quickly or without a penalty. 11-1 Low-Risk Choices Slide 2

What Are Low-Risk Savings Options? Savings accounts Money market accounts Two types: deposit account or fund Certificates of deposit Money set aside for specific length of time at a fixed interest rate Life insurance savings plans Borrow against the policy’s cash value Brokerage accounts An account at an investment company 11-1 Low-Risk Choices Slide 3

What Are Low-Risk Investing Options? Bonds A bond is a loan that a buyer makes to a bond issuer. Government and corporations issue bonds. The face value is the amount the bondholder will be repaid on the maturity date. The maturity date is the date the borrowed money must be repaid. Bonds can be purchased at a discount or premium. 11-1 Low-Risk Choices Slide 4

Return on a Corporate Bond Face value: $5,000 Discount rate: 4% Coupon rate: 4% yearly (paid semiannually) Term: 2 years   Purchase price: $5,000 × 0.04 = $200 discount amount $5,000  $200 = $4,800 discounted purchase price Semiannual interest: $5,000 × 0.04 = $200 interest per year ($100 semiannual payment) $200 × 2 years = $400 total interest received Return on investment: At the end of the second year, the bond is redeemed for $5,000 (face value). $ 5,400 total amount received ($5,000 face value + $400 interest)  4,800 amount invested $ 600 total profit in dollars $600 ÷ $4,800 = 0.125 = 12.5% total return on investment 11-1 Low-Risk Choices Slide 5

Building Communications Skills Bad News Messages Use an indirect approach. In the first paragraph, refer to the issue and give facts or logical reasoning. In the second paragraph, state the denial or other bad news. In the third paragraph, state the action you want the reader to take. Close on a positive note. 11-1 Low-Risk Choices Slide 6