1. Understand the role of finance in business.
Essential Standard 4.00

2. Understand saving and investing options for clients.
Objective 4.03

3. Topics Saving and investing basics Saving and investing options
Evaluation factors for savings and investing options

4. Forbes Richest 400 www.forbes.com/wealth/forbes-400/list
Complete Forbes 400 Wealthiest Individuals Activity

5. Saving and investing basics

6. Saving and Investing Basics
Reasons money is borrowed by the following:
Individuals: to purchase large ticket items such as homes and cars
Businesses: to operate or expand their business; purchase a building, replace old equipment or offering new products
Government: to improve or expand transportation, schools or other public services
People usually borrow money to purchase large ticket items such as homes and cars.
Businesses usually borrow money to operate or expand their business, which may include purchasing a building, replacing old equipment, or offering new products.
The Government may borrow money to improve or expand transportation, schools, or other public services.
Saving is putting away money for future use.
Investing is using savings to earn more money for future financial security.
Saving influences the economy by making more money available to be used by individuals, businesses, and the government. When the borrowed money is spent, the demand for goods and services is increased, which creates more jobs and spending for workers.

7. Saving and Investing Basics
What is saving?
Putting away money for future use
Where?
What is investing?
Using savings to earn more money for future financial security

8. Saving and Investing Basics
Saving influences on economic activity
makes more money available to be used by individuals, businesses and government
When the borrowed money is spent, the demand for goods and services increases which creates more jobs and spending for workers

9. Saving and Investing Basics continued
Main goals of savers and investors include making available immediate income and long-term growth
Main goals of savers and investors include making available immediate income and long-term growth.
Growth of savings is interest earned when others borrow your money.
Simple interest is the amount of money paid to saver on amount deposited for a period of time.
Compound interest is the amount of money paid to saver on money deposited and interest previously earned for a period of time.
The more times that interest is compounded the more growth of savings.
Simple interest is calculated by using the formula (P=Principal, R=Rate, T=Time and I=Interest Rate)
I=P * R * T.
Compound interest is calculated by using the formula (A=Amount, P=Principal amount/the initial amount you borrow or deposit, r=Annual rate of interest and n=Number of times interest is compounded)
A=P(1+r/n)nt.

10. Saving and Investing Basics continued
Growth of savings is interest earned when other borrow your money
Simple interest is the amount of $$ paid to saver on the amount deposited for a period of time
Compound interest is the amount of $$ paid to saver on the amount deposited AND interest previously earned for a period of time

11. Saving and Investing Basics continued
Impact of compound frequency on savings growth rate: the more times the interest is compounded the more growth in savings

12. How is simple interest calculated?
I = P*R*T
P = Principal (initial amount you borrow or deposit)
R= Rate
T = Time
I = Interest Rate

13. How is compound interest calculated?
A=P(1+r/n)nt
A = Amount
P = Principal (initial amt. you borrow or deposit)
r = Annual rate of interest
n = Number of times interest is compounded
t = time in years

14. Savings Growth Simple interest $1,000 at 10% $1,000 * .10 = $100
Year 1:
$1,000 * .10 = $100
$1,000 + $100 = $1,100
Year 2:
$1,100 + $100 = $1,200
What would the value be at the end of year 3?
Compound interest
$1,000 at 10%
Year 1:
$1,000 * .10 = $100
$1,000 + $100 = $1,100
Year 2:
$1,100 * .10 = $110
$1,100 + $110 = $1,210
What would the value be at the end of year 3?

15. DO THE MATH BEFORE CONTINUING….

16. Savings Growth
Simple Interest $1,000 * .10 = $100 $1,200 + $100 = $1,300
Compound Interest $1,210 * .10 = $121 $1,210 + $121 = $1,331

17. Savings Growth End of 3 Years
Simple Interest
I = P*R*T
1,000*.10*3 = 300
1, = $1,300
Compound Interest
A=P(1+r/n)nt
1,000(1+.1/1)1*3
1,000(1.1)3 = $1,331

18. Savings Growth
Calculate simple interest on $5,000 after 5 years at 10% interest
Calculate compound interest on $5,000 after 5 years compounded monthly at 10% interest

19. DO THE MATH BEFORE CONTINUING….

20. SERIOUSLY, DO THE MATH BEFORE CONTINUING…..
REMEMBER: THE PERSON DOING THE WORK IS DOING THE LEARNING AND I EXPECT YOU TO LEARN

21. Savings Growth Simple interest $5,000*.10*5 = $2,500
$5,000 + $2,500 = $7,500
Compound interest $5,000(1+.1/12)5*12=
$8,226.55

22. Saving and investing options

23. Saving Options – Savings Plans
Savings account: usually allows a low or zero balance, deposit or withdrawals (without penalties) anytime and pays low interest rate.
Certificates of deposit (CDs): a minimum deposit remains for a set period of time; penalty is withdrawn early
Money market account: a minimum deposit, interest earned based on gov’t and corp securities; pays slightly higher interest than savings account
A savings account usually allows low or zero balance, deposit or withdrawals anytime and interest to be earned. Usually withdrawals are allowed without penalties.
Certificates of deposits (CDs) requires a minimum deposit, money to remain deposited for a period of time without penalties. Penalties may be assessed if money is withdrawn before specified time.
Money market account requires a minimum deposit and interest is earned based on government and corporate securities. Usually withdrawals are allowed without penalties.

24. Complete How Savings Grow Activity Sheet

26. Main Categories of Investing Options
Stocks
Bonds
Mutual Funds and Exchange-traded Funds
Real Estate
Commodities
Collectibles

27. Stock Investments Two main categories of stock:
Preferred stock pays dividends at a set rate
Common stock represents general ownership in the company and sharing of profits
What are the major similarities and differences between preferred and common stocks?
Preferred stock pays dividends at a set rate.
Common stock represents general ownership in company and sharing of profits.
Major similarities between preferred and common stock are:
Both have investment risks and pay dividends
Major differences between preferred and common stock are:
Preferred stock
Preferred stock pays dividends before common stock is paid.
Preferred stockholders do not have voting powers; but common stockholders are invited to annual corporate meetings and permitted to one vote per share of stock owned.
Preferred stock is less risky than common stock.
Stockbrokers buy and sell stock and bonds at a set price for a commission for stockholders.
The stock exchange is where the trading of securities take place.
The market value of stock is the price for which a share of stock can be purchased.

28. Stock Investments Investment risk and pays dividends No voting power
Preferred Stock
Common Stock
Investment risk and pays dividends
No voting power
Pays dividend before common stock
Less risky than common
Investment risk and pays dividends
Invited to annual corporate meetings and one vote per share owned

29. Stock Investments What are stockbrokers? Stock exchange
People who buy and sell stocks and bonds at a set price for a commission
Stock exchange
Where the trading of securities takes place
What is market value of stock?
The price for which a share of stock can be purchased

30. NYSE – New York Stock Exchange
Located in New York City on Wall Street in lower Manhattan
Buyers and sellers of securities meet and compete for the best price for their customers. A trade takes place when the best bid meets the lowest offer to sell. Stock prices are determined by supply and demand.

31. Stock market terms
Initial public offering – the first time a company sells shares of itself to the public to raise capital
Bull market – when the prices of stocks are generally rising
Bear market – when the prices of stocks are generally declining

32. Stock market terms
Stockbroker – a professional who is licensed to buy and sell stock
Stock – A unit of ownership in a company
Dividend – profits paid to a stockholder as a return on investment
Capital – money needed to expand a company

33. Stock market terms
Supply – the quantity or amount of a product that is available
Bond – A loan or IOU that investors make to corporations and governments which pays interest over a fixed period of time
Demand – the quantity or amount of a product that buyers want to purchase

34. DJIA – Dow Jones Industrial Average
One of the best know and most widely cited indicators, the DJIA tracks the stock prices of 30 major “blue chip” companies
Invented by Charles Dow in 1896 as a way to gauge the performance of the stock market

35. General Electric Hewlett-Packard Home Depot Intel IBM
DJIA
ALCOA Inc.
American Express
AT&T
Boeing Co
Bank of America
Caterpillar
Cisco Systems
Coca-cola
E.I. du Pont
Exxon Mobile
General Electric
Hewlett-Packard
Home Depot
Intel
IBM
Johnson & Johnson
JPMorgan Chase
Kraft Foods
3M Company

36. DJIA McDonald’s Merck & Co. Microsoft Pfizer Proctor & Gamble
Travelers Co.
United Technologies
Verizon
Wal-Mart Stores
Walt Disney Co.

37. Stock Table A B C D E F G H I 52 Week Sales High Low Stock Div Yld PE
Vol
100s
Last
Chg
12 1/8 8
AAR
.44
6.2 15 6
6 3/4
6 5/8
6 1/2
-1/8
49 1/2
31 1/4
ACF
1.76
7.4 7
477
36 1/4
37 5/8 37
+3/4
26 1/2 16
AMF
1.36
6.7
133
17 1/2
-3/8
6 1/8
3 1/8
ARA 2 10
33 7/8 33 -1
A-Highest and lowest price of stock during the past 52 weeks
B-Symbol used to represent the company and current dividend as dollars per share of stock
C-Dividend yield based on current selling price
D-Price-earning ratio
E-Number of shares exchanged on trading day. The amount is listed in 100’s.
F-Highest price of a share on trading day
G-Lowest price of a share on trading day

38. Stock table
A – highest and lowest price of stock during the past 52 weeks
B – Symbol used to represent the company and current dividend as dollars per share of stock
C – Dividend yield based on current selling price
D – Price-earning ratio

39. Stock table
E – Number of shares exchanged on trading day. The amount is listed in 100’s
F – Highest price of a share on trading day
G – Lowest price of a share on trading day
H – Closing price
I – Change from previous trading day’s closing price

40. Selecting Stock
Factors that could influence investors in selecting stock:
Economic
Inflation
Interest rates
Consumer spending
Employment
Company
Dividend yield: dividend per share/mkt price per sh
Price-earnings ratio: stock price/earnings per share
Dividend yield is the amount paid per share for stock.
Price-earnings ratio is the relationship between a stock’s selling price and its yield.

41. current value – original value = yield
Yield Calculations
Yield is usually calculated in the following way:
current value – original value = yield
original value
Current value=closing price for the day
Original price=price paid for stock
Yield=Interest earned
For example: a stock is bought at $40 and valued at $43:
$43 – $40
$40
yield = 7.5%

42. Yield Calculations Dividends also may be added to the calculation.
For example: a stock is bought at $40 and sold at $43, but also earned a $2 dividend during that time:
$43 + $2 – $40
$40
yield = 12.5%

43. Price/Earnings Ratio Stock price/Earnings per share = P/E ratio
A measure of market valuation (capitalization)
Affected by: growth rate of the company, expectations of future growth rate, earnings, and other risk factors
Should use to compare companies within the same industry

44. Comparing Stocks Activity
Complete “Comparing Stocks Activity” using:

45. Bond Investments What is a bond? Main Categories of Bonds
A promissory note to pay back a specified amount of money at a stated rate on a specific date; issued to lend funds to the organization selling the bond.
Main Categories of Bonds
Government bonds
Municipal bonds: issued by local and state gov’ts for public service projects
U.S. savings bonds: Series EE, HH and I bonds
Treasury bills (91 days to 1 year) and notes (1 to 10 years)
Corporate bonds: loaning money to a company
A bond is a promissory note to pay back a specified amount of money at a stated rate on a specific date.
Bonds are issued to lend funds to the organization selling the bond.
Municipal bonds are issued by local and state governments for public service projects.
The federal government issues Series EE bonds, HH bonds, and I bonds. Also the federal government issues Treasury bills and notes.
The EE bond interest is paid once the bond is cashed. The HH bond interest is paid twice a year, which may be considered income.
The treasury bills and notes differ by their maturity time frame. Treasury bills may reach maturity between 91 days to a year; where as treasury notes take one to ten years.
Purchasing corporate bonds is a means of loaning money to a company.
The stated interest rate usually determines the price investors want to pay for a bond. If a bond’s stated interest rate is lower than similar ones, investors will most likely want to pay less for the bond. If the stated interest rate is higher than similar ones, the seller will most likely want to be paid more than its face value.

46. Bond investments
Lenders versus owners as it relates to investing in a company’s stocks and bonds
Bonds = lender Stocks=owner
How does stated interest rate impact the value of a bond?
Stated interest rate determines the price investors want to pay for a bond

47. Bond investments Bond sold at par value
Ex. A bond’s stated interest rate is 5% and the current market rate is 5%.
Bond would be sold at par (100)
A $10,000 bond would sell for $10,000

48. Bond investments Bond sold at a premium
Ex. A 10 year bond sells in 2005 for $10,000 with a stated interest rate of 5%
In 2007, the market interest rate is 3%
Because your bond is paying a higher interest rate than the market rate, you could sell you bond for more than the $10,000 face value (102) in order to realize a yield of 3%
A $10,000 bond would sell for $10,200

49. Bond investments Bond sold at a discount
Ex. A 10 year bond sells in 2005 for $10,000 with a stated interest rate of 5%
In 2007, the market interest rate is 7%
Because your bond is paying a lower interest rate than the market rate, a buyer would be willing to pay less than face value (98) in order to realize a yield of 7%
A $10,000 bond would sell for $9,800

50. Comparing bond investments
Current yield of a bond =
Dollar amount of annual interest income/current market value
Ex. Annual interest income = $80
Current Market Value = $998
$80/$998 = 8%
This bond is being sold at a discount because the current market value is less than par (1000).

51. Bond Investments Activity
Use the following website to research the values of current bond offerings.

52. Mutual Funds
A portfolio of stocks, bonds or both grouped according to an investment strategy
Net asset value (NAV) is a per share value determined at the end of each trading day. A mutual fund is bought or sold at the NAV no matter if the trade takes place at 10 AM or 3 PM or any time in between opening and closing bell

53. Mutual Funds
Mutual Fund Companies’ major tasks in assisting investors of mutual funds
The mutual fund company studies companies stocks and bonds and then buys a variety of stocks and bonds to sell to investors based on their level of risk and investment strategies
Companies assist investors of mutual funds by studying companies stocks and bonds, and then buying a variety of stocks and bonds to sell.
Aggressive-growth stock funds look for quick growth, but also have an higher risk than other stock.
Income funds concentrate on stocks that pay regular dividends.
International funds invest in a variety of company stock around the world.
Sector funds purchase stocks of companies in the same industry.
Bond funds concentrate in corporate bonds.
Balanced funds invest in both stocks and bonds.

54. Mutual Funds Some examples of mutual fund categories
Aggressive-growth stock funds: look for quick growth but has a higher level of risk
Income funds: look for stocks that pay regular dividends
International funds: stocks from around the world
Sector funds: companies in the same industry
Bond funds: corporate bonds
Balanced funds: both stocks and bonds

55. Exchange-traded Fund (ETF)
An exchange-traded fund (ETF) is a portfolio of stocks, bonds or other investments that trade on a stock exchange like regular stock.
Similar to a mutual fund except the value changes during the day like a stock so an investor may pay a different price at 10 AM vs. 3 PM or any time between opening bell and closing bell

56. Other Investments Real Estate: land and anything attached to it
Advantages: tax benefits, increased equity, pride of ownership
Disadvantages: property taxes, interest payments, property insurance, maintenance
Examples: house, condominium, mobile home park, farmland, commercial property, industrial property
Real Estate includes land and anything attached to it.
Some advantages of investing in real estate are tax benefits, increased equity, and pride of ownership. Some disadvantages of investing in real estate are property taxes, interest payments, property insurance, and maintenance.
Real estate examples may include a house, condominium, and a mobile home park.
Commodities include grain, livestock, and precious metals. Commodity investors usually agree to buy and sell for an amount at a specified price in the future. Examples may include rice, cattle, and gold.
Collectibles are items collected over time that may increase in value. Examples may include art work, antique furniture, and autographed items.

57. Other investments
Commodities and futures: grain, livestock and precious metals; investors agree to buy and sell for an amount at a specified price in the future
Examples: rice, cattle, gold, pork bellies
Collectibles: items collected over time that may increase in value
Examples: art work, antique furniture, autographed items, beanie babies

58. Evaluation factors for savings and investing options

59. Evaluation Factors Safety and risk Potential yield
Safety is assurance that the money you invested will be returned to you
Risk is the chance that the money you invested will not be returned to you
Potential yield
The possible percentage of money earned on a savings or investment over a year
Higher yield = higher risk

60. Evaluation Factors Liquidity Taxes
The ease with which an investment can be changed into cash without losing value
Taxes
Amount the federal and state governments require as payment based on type of investment, return of interest and gain or loss of principal amount

61. Mutual Fund Activity
Complete the “Right Type of Mutual Fund Activity” provided

62. Student Activity: Using the “Comparing Mutual and Exchange - Traded Funds Activity” Create a double bubble thinking map to compare and contrast Mutual Funds and ETFs