© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Twenty Understanding Personal Finances and Investments 20 | 1 PRIDE HUGHES KAPOOR INTRODUCTION TO BUSINESS ELEVENTH EDITION

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives 1. Explain why you should manage your personal finances and develop a personal investment program 2. Describe how the factors of safety, risk, income, growth, and liquidity affect your investment program 3. Understand how securities are bought and sold 4. Recognize how you can reduce investment risk and increase investment returns 5. Identify the advantages and disadvantages of savings accounts, bonds, stocks, mutual funds, and real estate investments 6. Describe high-risk investment techniques 7. Use financial information to evaluate investment alternatives 20 | 2

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Your Personal Finances  Be familiar with the three steps to Managing Your Personal Finances  Define Personal Budget  What are warning signs your credit card spending is excessive? 20 | 3

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Your Personal Finances (cont’d)  Discuss Investment Goals and Personal Investment  What must Goals be?  What are some questions to consider when establishing goals?  What are the Advantages of Long-Term Investing? 20 | 4

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Your Personal Finances (cont’d)  What does A Personal Investment Program involve?  Define Financial Planner  What does the textbook suggest you do to help you accumulate money needed to fund an investment plan? 20 | 5

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Important Factors in Personal Investment  Be familiar with the factors you must consider when matching potential investments to goals Safety and Risk Investment Income Investment Growth Investment Liquidity  Be prepared to discuss the textbook’s recommendations about managing investments during a financial crisis 20 | 6

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Securities Are Bought and Sold  Know how Securities are generally bought and sold  Define Primary Market Secondary Market Account Executive Full-Service Broker Discount Broker  When choosing an account executive, what problems may arise? 20 | 7

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Securities Are Bought and Sold (cont’d)  Be prepared to go through the steps involved in a typical stock transaction on the NYSE  Know the difference between a Market Order and a Limit Order  What are Commissions?  How do commissions vary between different brokerage firms? 20 | 8

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Regulation of Securities Trading  What is a Regulatory Pyramid?  Be prepared to discuss its Four Levels 20 | 9

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors That Can Improve Your Investment Decisions  What variables will affect How you manage your Portfolio Your personalized Asset Allocation  Define Asset allocation The time factor Age  Know which investments are risky and which are low-risk  What is Your Role in the investment process? 20 | 10

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Traditional Investment Alternatives  Know the advantages and disadvantages of investing in Bank Accounts Corporate Bonds Convertible Bonds Government bonds -Treasury Bills -Treasury Notes -Treasury Inflation-Protected Securities (TIPS) -Treasury Bonds -Savings Bonds (EE bonds) -Municipal Bonds 20 | 11

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Traditional Investment Alternatives (cont’d)  Be able to compare investing in different types of stock Common Stock -Stock Dividend -Dividend Payments -Capital Gain -Market Value -Stock Splits Preferred Stock -Cumulative Preferred Stock -Convertible Preferred Stock 20 | 12

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mutual Funds  Define Mutual Funds and Exchange Traded Funds Closed-End Funds Open-End Funds Exchange-Traded Fund  Be able to define and calculate Net Asset Value 20 | 13

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mutual Funds (cont’d)  Define Load Funds No-Load Funds Yearly Management Fee Managed Funds Index Funds Family of Funds 20 | 14

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mutual Funds (cont’d)  Be familiar with Types of Mutual Fund Investments Aggressive growth stock funds Global stock funds Growth stock funds High-yield (junk) bond funds Income stock funds Index funds Lifecycle funds Long-term U.S. bond funds Regional funds Sector stock funds Small-cap stock funds 20 | 15

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Real Estate  What are the Advantages and Disadvantages of investing in Real Estate?  Be prepared to discuss the Real Estate Checklist in your textbook 20 | 16

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. High-Risk Investment Techniques  Define Buying Long Selling Short Buying Stock on Margin -Margin Requirement  Be familiar with high-risk investment choices Stock options Derivatives Commodities Precious metals Gemstones Coins Antiques and collectibles 20 | 17

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Financial Information  Discuss Sources of Financial Information The Internet Newspaper Coverage Professional Advisory Services Brokerage Firm Analysts’ Reports Business Periodicals Corporate Reports  What are Security Averages? 20 | 18