Copyright © 2008 Pearson Education, Inc. Slide 4-1 Unit 4C Savings Plans and Investments.

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Copyright © 2008 Pearson Education, Inc. Slide 4-1 Unit 4C Savings Plans and Investments

Copyright © 2008 Pearson Education, Inc. Slide 4-2 Definitions An annuity is any series of equal, regular payments. An ordinary annuity is a savings plan in which payments are made at the end of each month. An annuity due is a plan in which payments are made at the beginning of each period. The future value is the accumulated amount at some future date. The present value of a savings plan is a lump sum deposit that would give the same end result as regular payments into the plan. 4-C

Copyright © 2008 Pearson Education, Inc. Slide 4-3 Savings Plan Formula (Regular Payments) 4-C Y = number of years A = accumulated balance after Y years PMT = regular payment (deposit) amount APR = annual percentage rate (as a decimal) n = number of payment periods per year

Examples: #46 and #47 in the text Savings Plan Group Assignment Copyright © 2008 Pearson Education, Inc. Slide 4-4

Copyright © 2008 Pearson Education, Inc. Slide 4-5 Types of Investments 4-C Stock (equity) – a share of ownership in a company. Invest some principal amount to purchase the stock. The only way to get money out is to sell the stock. Because stock prices change with time, the sale may give either a gain or a loss

Copyright © 2008 Pearson Education, Inc. Slide 4-6 Types of Investments continued 4-C Bond (debt) – a promise of future cash. Buy a bond by paying some principal amount to the issuing government or corporation. The issuer pays simple interest and promises to pay back the principal at some later date. Cash investments include bank accounts, certificates of deposit (CD), and U.S. Treasury bills. Cash investments generally earn interest.

Copyright © 2008 Pearson Education, Inc. Slide 4-7 Investment Considerations 4-C 1.Liquidity 2.Risk 3.Return

Table 4.6 page 257 Investment TypeAverage Annual Return* Best YearWorst Year Small-Company Stocks12.6%142.9% (1933)-58.0% (1937) Large-Company Stocks10.4%54.0% (1933)-43.3% (1931) Long-Term Corporate Bonds 5.9%42.6% (1982)-8.1% (1969) Cash (U.S. Treasury Bills) 3.7%14.7% (1981)-0.02% (1938) Copyright © 2008 Pearson Education, Inc. Slide 4-8 * Includes both increases in price and any dividends or interest.

Copyright © 2008 Pearson Education, Inc. Slide 4-9 Stock Market Trends 4-C

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