Announcements 1.Groups lists will be distributed with 5 minutes to go in class. 2.If anyone is not in a group, let me know ASAP. 3.PAN #90233 (two groups 1 & 5 – choose one). 4.Calculator requirement: exponents 5.Vocabulary is due on Wednesday. 6.Quiz on Friday. 7.Is there a web designer in class that is willing to help me with my website? 8.Readings for Monday Oct 10 th will be announced on Wednesday.

Tests and Quizzes No ear buds No electronic devises Nothing on the table No talking to your neighbours If you have a question, call me to you Any breach of these rules will result in an automatic ZERO

Homework – Extra Points 1.Find out the approximate annual income of a front line worker in Walmart. 2.You have $100 to invest. Which will bring you more profit, investing it at 10% daily or annually? If you want bonus points towards Group Work, get the answers and hand them to me at the beginning of the next class. Include your student # and name at the top of the page.

Financial Planning and Its Benefits Personal financial planning - Process of managing money to achieve personal economic satisfaction. Advantages of personal financial planning: 1) Increased effectiveness in obtaining, using, and protecting your financial resources. 2) Increased control / awareness of your financial affairs. 3) Improved personal relationships (know what to expect, fewer surprises, less stress) 4) A sense of freedom from financial worries obtained by looking to the future. 1-2

The Financial Planning Process  Determine your current financial situation. A personal balance sheet will work.  Develop your financial goals.  Identify alternative courses of action.  Evaluate your alternatives.  Create and implement your financial action plan.  Review and revise your plan frequently The markets change quickly. Do not be caught on vacation when the market takes a dive! 1-3

Consequences of Choices: Opportunity Cost Opportunity cost What you give up when you make a choice Less expensive house = ownership sooner / no mortgage and no interest charges More expensive house = longer mortgage / continue paying interest Opportunity Cost of Bigger House = less money for later in life. 1-4

The cost, or trade-off of a decision, cannot always be measured in dollars. Sometimes the cost is your time. What opportunity costs do you have from being a college student? 1.Lost income while in university (4 – 7 years) equals 20,000 RMB * 7 = 140,000 RMB 2.Lost social recreational and leisure time because a true student does not have the money AND is working all the time. 3.Other ?

Every Financial Decision Involves Evaluating Types of Risk Inflation risk. – Rising prices cause lost buying power. Interest-rate risk. – Effect costs of borrowing and rate of return. Income risk. – If I do not invest and I lose my job, how will I feed myself and my family? Personal risk. – If I have partial or no health benefits, how will pay for costly medical procedures for myself or my children (Emma)

Liquidity risk (Higher return may mean less liquidity) Examples: 1) 60 days to get money 2) Penalty for taking it early 3) Share price may be down 4) Real Estate: 6 months to sell a house is not unheard of.

Financial Planning Information Sources Printed materials. Financial institutions. School courses and educational seminars. The internet, online sources, computer software. Financial specialists. – Financial planners, bankers, accountants, insurance agents, lawyers and tax preparers. 1-6

Financial goals include those influenced by: The time frame in which you want to achieve your goals. Short-term, intermediate and long-term goals. Goals for different financial needs Consumer product goals (television, car, new suit), vacation, children’s education, retirement, etc. 1-7

Mutual Funds are a group of investments commonly offered by North American Banks Mutual Funds quote past / historic rates of return because they can not tell us what is going to happen in the future. They take a historical mean (average). We buy mutual funds based on their good performance in the past. In theory, if they performed well in the past, they were likely managed well and will be more likely to perform well in the future.

Discount Rate Discount Rate is the rate of return that is applied to an investment whose future value is known. For example, if you require a 10% rate of return, you will need to invest $ today, to be paid $1,000 in one year. Therefore, $ is the value of $1,000 discounted at 10% for one year.

Future Value The Future Value is computed when you know what you have to invest and at what rate and the length of the time period. The future value shows you the final compounded value.

Time Value of Money considers Compounding Investing: Compounding gives a return on your original investment plus a return on previous returns. (interest earned on interest) What annual rate compounds $100 to $120 in two years? Is it 10% ? No. Answer = % If the rate was 10%, the value would be $121 in two years. Think of these investments as 2 investments, each being 1 year in duration.

Year 1$100 x % = $9.545 Year 2$ x % = $ Value of money after 2 years = $120 We call the $120 the future value.

Year 1$100 x 10% =$10 Year 2$110 x 10% = $11 Value of money after 2 years is $121 It is important to know the difference because when borrowing and paying interest, compounding increases the total interest paid.