Keys to Financial Success Theme 4 – Spending and Credit

Keys to Financial Success Theme 4 – Spending and Credit
Create a KWL Chart in your binder (3 columns) Complete columns 1 and 2 only Column 1 – What do I KNOW about the Economic Way of Thinking Column 2 – What do I WANT to learn about the Economic Way of Thinking Column 3 – What did I LEARN about the Economics Way of Thinking READ THE INTRODUCTION HANDOUT Summarize the unit in a 4-5 sentence paragraph

Lesson 4.1: Pay Yourself First, Early and Often
Objectives Students will be able to: Identify the opportunity cost and the benefit of spending and saving. Calculate investment accumulations for various interest rates and investment time periods. Compare the benefit and opportunity cost of saving and investment strategies that vary over one’s life cycle. Analyze and explain the impact of the amount saved, time, and rate of return on financial accumulations. Concepts Benefit Compound Interest Opportunity Cost Rule of 72 Rate of return TODAY – INTRODUCTED TO CONCEPTS OF OPPORTUNITY COST AND THE BENEFIT OF SPENDING AND SAVING; USE TABLES TO VIEW THE IMPACT THAT COMPOUNDING HAS ON YOUR SAVINGS

OPENER – COPY AND ANSWER IN BINDER
EVERYBOYS SAYS THAT IT IS A GOOD IDEA TO SAVE MONEY, BUT MANY PEOPLE—EVEN SOME WHO EARN GOOD INCOMES—SAVE VERY LITTLE OVER THEIR LIFETIMES. WHY MIGHT THAT BE? BE PREPARED TO SHARE WITH CLASS.

EXERCISE 20.1 – THE BENEFITS & OPPORTUNITY COSTS OF SPENDING & SAVING
READ THE EXERCISE AND ANSWER THE QUESTIONS DISCUSSION QUESTIONS – WHAT ARE THE BENEFITS AND THE OPPORTUNITY COST OF SPENDING YOUR INCOME TODAY? WHAT ARE THE BENEFITS AND OPPORTUNITY COST OF SAVING SOME OF YOUR INCOME?

EXERCISE 20.2 – A TALE OF TWO SAVERS
READ THE EXERCISE – DO NOT TRY TO ANSWER THE QUESTIONS ON THE BACK DISCUSSION QUESTIONS – WHICH PERSON DO YOU BELIEVE HAD MORE MONEY IN SAVINGS AT THE END OF HIS OR HER 65TH YEAR? HOW MANY PEOPLE PICKED ANNA? WHY DID YOU PICK ANNA? HOW MANY PEOPLE PICKED SHAWN? WHY DID YOU PICK SHAWN?

WHO GUESSED RIGHT? STUDY THE TABLE AND USE THE INFORMATION PROVIDED TO ANSWER THE QUESTIONS ON THE BACK OF EXERCISE 20.2 DISCUSSION QUESTIONS – HOW MUCH MONEY HAD ANA PUT INTO SAVINGS BY AGE 65? $24,000 HOW MUCH MONEY HAD SHAWN PUT INTO SAVINGS BY AGE 65? $64,000 HOW MUCH IN TOTAL SAVINGS DID ANA HAVE AT THE END OF HER 65TH YEAR? $996,306.59 HOW MUCH IN TOTAL SAVINGS DID SHAWN HAVE AT THE END OF HER 65TH YEAR? $442,503.99

DISCUSSION QUESTIONS – IN MONEY TERMS, WHAT WAS THE OPPORTUNITY COST OF ANA’S SAVINGS DECISION? WHAT WAS THE BENEFIT? IN MONEY TERMS, WHAT WAS THE OPPORTUNITY COST OF SHAWN’S SAVINGS DECISION? WHAT WAS THE BENEFIT? IN TRYING TO BUILD WEALTH, THE AMOUNT SAVED IS OBVIOUSLY IMPORTANT. WHAT OTHER FACTORS ARE IMPORTANT? WHY? WHAT ARE THE INCENTIVES FOR SAVING EARLY IN LIFE? WHAT WAS ANA’S OPPORTUNITY COST OF SAVING EARLY? WHAT CONCLUSIONS CAN YOU DRAW FROM THIS ACTIVITY?

VISUAL 20.1 – THE CHESSBORAD OF FINANCIAL LIFE
WHAT WOULD YOU CHOSE – $10,000 COLD HARD CASH, OR THE AMOUNT RESULTING FROM THE PENNY IN THE CORNER DOUBLED ON THE NEXT SQUARE AND SO ON, REPEATEDLY, UNTIL EACH SQUARE HAS BEEN USED BE PREPARED TO SHARE YOUR ANSWER WITH CLASS USE YOUR CALCULATORS TO CONTINUE CALCULATING THE AMOUNTS THA TWOULD ACCUMULATE ON THE CHESSBOARD 2ND SQUARE: 2 X .01 = .02 (KEEP MULTIPLYING BY 2 FOR EACH SQUARE) RECORD THE AMOUNTS IN EACH SQUARE HOW MUCH MONEY WOULD YOU HAVE BY SQUARE 21? $10,485.76 HOW MUCH MONEY DO YO HAVE AT THE END – 64TH SQUARE? 9,200,000,000,000,000,000 (THAT’S 92 QUADRILLION DOLLARS)

LESSON 4.1 NOTES COMPOUNDING – CONTINUAL PROCESS OF MULTIPLYING
PENNIES TO HUNDREDS TO THOUSANDS TO MILLIONS, ETC. COMPOUNDING IMPORTANT TO SAVERS FOR EVERY DOLLAR SAVED, THE BANK PAYS INTEREST INTEREST IS ADDED TO PRINCIPAL (AMOUNT SAVED) ADDITIONAL INTEREST IS PAID ON PRINCIPLE AND INTEREST END RESULT – MONEY GROWS FASTER!!!!!

SAVE EARLY AND OFTEN (COPY)
FACTORS AFFECT THE GROWTH OF SAVINGS – TIME – THE EARLIER OR LONGER YOU SAVE, THE MORE TOTAL SAVINGS YOU WILL HAVE INVESTMENT SIZE THE MORE YOU SAVE EACH YEAR FROM YOUR INCOME, THE MORE TOTAL SAVINGS YOU WILL HAVE RATE OF RETURN THE HIGHER THE INTEREST RATE OR RATE OF RETURN, THE MORE TOTAL SAVINGS YOU WILL HAVE

4.1 CLOSURE – TURN INTO BIN YOU JUST TURNED 16 AND IN TOTAL YOU RECEIVED $1000 IN CASH FROM YOUR FAMILY AND FRIENDS. WHAT SHOULD YOU DO WITH THAT MONEY? WHY?

Homework EXERCISE 20.3 – WHY IT PAYS TO SAVE EARLY AND OFTEN
STUDY CONCEPTS FROM CLASS WORK ON BINDER

Lesson 4.2: Why Should I Have a Savings Plan?
Objectives Students will be able to: Identify personal and financial goals. Revise personal and financial goals to align with their income. Explain how a savings plan can help them successfully reach a goal. Concepts Savings goal TODAY – REVIST THE GOALS DEVELOPED EARLIER IN THE CURRICULUM AND EXAMINE HOW SAVING CAN HELP THEM SUCCESSFULLY ACHIEVE THESE GOALS AND REVISED GOALS

FIND THE FOLLOWING TWO HANDOUTS
HANDOUT – FROM LESSON 1.5 HOW TO SET GOALS GOAL GRID SOCCER FIELD HANDOUT – FROM LESSON 2.6 DREAMS AND PLANS CAREER RESEARCH MATRIX

NEW HANDOUT 1.5.2 – GOAL GRID SOCCER FIELD
LOOK AT YOUR OLD GOALS AND DECIDE IF YOU WANT TO MAKE CHANGES TO YOUR ORIGINAL GOALS IF YOU WANT TO MAKE CHANGES DO SO ON THE BLANK HANDOUT IF YOU DO NOT WANT TO MAKE CHANGES REWRITE YOUR SHORT, MEDIUM AND LONG TERM GOALS ON THE BLANK COPY

HANDOUT 4.2.1 – INVESTMENT: WHY I SHOULD HAVE A SAVINGS PLAN
USE THE INFORMATION THAT YOU HAVE COLLECTED ON HANDOUT TO COMPLETE HANDOUT 4.2.1 ENTER THE NEW SAVINGS AMOUNTS ON HANDOUT AS LONG-TERM GOALS DISCUSSION QUESTIONS - WHAT IS THE ENTRY LEVEL GROSS INCOME OF YOUR CHOSEN CAREER? IS YOUR CAREER CHOICE AN IMPORTANT CONSIDERATIN WHEN PLANNING FOR FUTURE GOALS? WILL YOUR GROSS INOCME INCREASE OVER TIME DURING YOUR WORKING CAREER? DID YOU MAKE ANY CHANGES TO THE GOALS THAT YOU SET EARLIER? HOW MANY OF YOU PLAN TO PURCHASE A HOME IN THE FUTURE? HOW MANY OF YOU PLAN TO HAVE CHILDREN IN THE FUTURE? DO YOU PLAN ON RETIRING WHEN YOU BECOME 65 OR 70 YEARS OLD?

Lesson 4.2 Notes (COPY) ALL STUDENTS WHO RAISED YOUR HANDS WILL HAVE TO SAVE SOME MONEY IN ORDER TO CARRY OUT THESE PLANS HOME OWNERSHIP, HAVING AND RAISING CHILDREN, RETIRING FROM WORK – ALL REQUIRE A CERTAIN AMOUNT OF MONEY IN ORDER TO BE CARRIED OUT SUCCESSFULLY DOES ANYONE KNOW HOW MUCH MONEY ON AVERAGE YOU WILL NEED TO RETIRE? $1.75 MILLION

4.2 DISCUSSION QUESTIONS – WORK WITH A PARTNER TO ANSWER IN BINDER (SHARE W/ CLASS)
DO YOU THINK YOUR CHOSEN CAREER AND THE INCOME ASSOCIATED WITH THAT CAREER WILL PROVIDE YOU WITH ENOUGH MONETY TO BE ABLE TO ATTAIN ALL YOUR GOALS SUCCESSFULLY? IF YOU ARE NOT ABLE TO SAVE FOR SOME GOALS, HOW WILL YOU PAY FOR THEM? WHAT ARE SOME GOALS THAT YOU CAN SAVE FOR? HOW MUCH WILL IT COAST YOU IF YOU HAVE TO BORROW IN ORDER TO PAY FOR THE COMPLETION OF THESE GOALS? IF YOU DECIDE TO BORROW IN ORDER TO REACH A GOAL, WHAT ELSE SHOULD YOU TAKE INTO CONSIDERATION WHEN REFLECTING ABOUT THE USE OF CREDIT OR BORROWED MONEY? WHY MIGHT TAKING OUT A OAN TO PAY FOR TRAINING AND/OR EDUCATION BE A GOOD IDEA? WHY IS IT IMPORTANT TO HAVE SAVINGS PLAN?

4.2 CLOSURE – COMPLETE IN BINDER
WHY IS IT IMPORTANT TO SET GOALS WHEN PLANNING TO SAVE? WERE YOU AWARE OF HOW MUCH IN SAVINGS IS REQUIRED IN ORDER FOR YOU TO SUCCESSFULLY MEET YOUR GOALS?

Homework Brainstorm a time when they saved for the purchase of a good or service. Explain when this occurred and how you planned and carried out this action of saving and purchasing. Explain how hard or easy the process was to carry out and include any actions you took to overcome any problems. Express some of the “road bumps” or “twists and turns” that you had to deal with along the way. STUDY CONCEPTS FROM CLASS WORK ON BINDER

Lesson 4.3: How Do I Decide Whether to Save, Invest, or Both?
Objectives Students will be able to: Explain why an early start in saving and investing increases a household’s capacity to build wealth. Compare the strategy of buying and holding financial assets as opposed to trading assets frequently. Explain the benefits of diversification. Identity different forms of saving and investing; discuss the costs and benefits of each. Concepts Compound Interest Reward Diversification Risk Forms of Saving and Investing TODAY – EXAMINE AND UNDERSTAND RULES FOR BUILDING WEALTH OVER THE LONG TERM: SAVING EARLY, BUYING AND HOLDING, AND DIVERSIFYING

Three Rules for Building Wealth
Slide 9.1 Lesson 9 – Building Wealth over the Long Term Three Rules for Building Wealth Start early. Give money time to grow. Buy and hold. Keep your money invested. Diversify. Don’t put all your eggs in one basket.

Charlayne Becomes a Millionaire - Accidentally
Slide 9.2 Lesson 9 – Building Wealth over the Long Term THE NUMBER MORE THAN DOUBLES BECAUSE SHE IS RECEIVING EARNINGS ON EARNINGS Charlayne Becomes a Millionaire - Accidentally SAVING $25 PER WEEK Year Beginning Balance Addition to Principal Return Ending Balance $0.00 $2,600.00 $104.00 $2,704.00 1 $320.32 $5,624.32 2 $553.95 $8,778.27 3 $806.26 $12,184.53 4 $1,078.76 $15,863.29 5 $1,373.06 $19,836.35 6 $1,690.91 $24,127.26 7 $2,034.18 $28,761.44 8 $2,404.92 $33,766.36 9 $2,805.31 $39,171.66 10 $3,237.73 $45,009.40

Charlayne Becomes a Millionaire – Accidentally (Cont.)
Slide 9.3 Lesson 9 – Building Wealth over the Long Term Charlayne Becomes a Millionaire – Accidentally (Cont.) Year Beginning Balance Addition to Principal Return Ending Balance 11 $45,009.40 $2,600.00 $3,704.75 $51,314.15 12 $4,209.13 $58,123.28 13 $4,753.86 $65,477.14 14 $5,342.17 $73,419.32 15 $5,977.55 $81,996.86 16 $6,663.75 $91,260.61 17 $7,404.85 $101,265.46 18 $8,205.24 $112,070.70 19 $9,069.66 $123,740.35 20 $10,003.23 $136,343.58 21 $136,343,58 $11,011.49 $149,955.07 22 $12,100.41 $164,655.47 23 $13,276.44 $180,531.91

Slide 9.4 Lesson 9 – Building Wealth over the Long Term Charlayne Becomes a Millionaire – Accidentally (Cont.) Year Beginning Balance Addition to Principal Return Ending Balance 24 $180,531.91 $2,600.00 $14,546.55 $197,678.46 25 $15,918.28 $216,196.74 26 $17,399.74 $236,196.48 27 $18,999.72 $257,796.20 28 $20,727.70 $281,123.89 29 $22,593.91 $306,317.80 30 $24,609.42 $333,527.23 31 $26,786.18 $362,913.41 32 $29,137.07 $394,650.48 33 $31,676.04 $428,926.52 34 $34,418.12 $465,944,64 35 $465,944.64 $37,379.57 $505,924.21 36 $40,577.94 $549,102.14

Slide 9.5 Lesson 9 – Building Wealth over the Long Term Charlayne Becomes a Millionaire – Accidentally (Cont.) Year Beginning Balance Addition to Principal Return Ending Balance 37 $549,102.14 $2,600.00 $44,032.17 $595,734.32 38 $47,762.75 $646,097.06 39 $51,791.76 $700,488.83 40 $56,143.11 $759,231.93 41 $60,842.55 $822,674.49 42 $65,917.96 $891,192.45 43 $71,399.40 $965,191.84 44 $77,319.35 $1,045,111.19 45 $83,712.90 $1,131,424.08

The Magic of Compounding
Slide 9.6 Lesson 9 – Building Wealth over the Long Term The Magic of Compounding When you save, you earn interest. When you take the interest out and spend it, it stops growing. But if you leave the interest in your account so it can grow, you start to earn interest on the interest you earned previously. Interest on interest is money you didn’t work for. It is money your money makes for you! Over time, interest on interest can increase your total savings greatly.

Lesson 9 – Building Wealth over the Long Term
Slide 9.7 Lesson 9 – Building Wealth over the Long Term What is the difference between Marcus’s first 9 years and Charlayne’s? Marcus’s Mistake Year Beginning Balance Addition to Principal Return Ending Balance $0.00 1 2 3 4 5 6 7 8 9 10 $2,600.00 $104.00 $2,704.00

Marcus’s Mistake (Cont.)
Slide 9.8 Lesson 9 – Building Wealth over the Long Term Marcus’s Mistake (Cont.) Year Beginning Balance Addition to Principal Return Ending Balance 11 $2,704.00 $2,600.00 $320.32 $5,624.32 12 $553.95 $8,778.27 13 $806.26 $12,184.53 14 $1,078.76 $15,863.29 15 $1,373.06 $19,836.35 16 $1,690.91 $24,127.26 17 $2,034.18 $28,761.44 18 $2,404.92 $33,766.36 19 $2,805.31 $39,171.66 20 $3,237.73 $45,009.40 21 $3,704.75 $51,314.15 22 $4,209.13 $58,123.28 23 $4,753.86 $65,477.14

Slide 9.9 Lesson 9 – Building Wealth over the Long Term Marcus’s Mistake (Cont.) Year Beginning Balance Addition to Principal Return Ending Balance 24 $65,477.14 $2,600.00 $5,342.17 $73,419.32 25 $5,977.55 $81,996.86 26 $6,663.75 $91,260.61 27 $7,404.85 $101,265.46 28 $8,205.24 $112,070.70 29 $9,069.66 $123,740.35 30 $10,003.23 $136,343.58 31 $136,343,58 $11,011.49 $149,955.07 32 $12,100.41 $164,655.47 33 $13,276.44 $180,531.91 34 $14,546.55 $197,678.46 35 $15,918.28 $216,196.74 36 $17,399.74 $236,196.48

Slide 9.10 Lesson 9 – Building Wealth over the Long Term Marcus’s Mistake (Cont.) How much money does Marcus end up with at retirement? Why is it so much less than Charlayne? Year Beginning Balance Addition to Principal Return Ending Balance 37 $236,196.48 $2,600.00 $18,999.72 $257,796.20 38 $20,727.70 $281,123.89 39 $22,593.91 $306,317.80 40 $24,609.42 $333,527.23 41 $26,786.18 $362,913.41 42 $29,137.07 $394,650.48 43 $31,676.04 $428,926.52 44 $34,418.12 $465,944,64 45 $465,944.64 $37,379.57 $505,924.21

Slide 9.11 Lesson 9 – Building Wealth over the Long Term Buy and Hold In order to leave money in savings or investments, you have to do these things: Spend less than you receive. How? Perhaps you could … Earn more by improving your formal education or job skills. Spend less by using a budget to keep track of where your money is going. Become connected to financial institutions. How? Open and maintain accounts at mainstream financial institutions – banks, credit unions, and brokerages. Manage your credit responsibly. How? Limit the number of credit cards you have. Limit your purchases to amounts you can pay off each month. Apply for loans when you are confident that your current income (in the case of college loans, future income) will allow you to repay the loan.

The Stock Market Roller Coaster
Slide 9.12 Lesson 9 – Building Wealth over the Long Term The Stock Market Roller Coaster If you buy and sell on the ups and downs, you may lose money. Those who have held stocks for the long term have found the ups are greater than the downs.

Don’t Put All Your Eggs in One Basket
Slide 9.13 Lesson 9 – Building Wealth over the Long Term Don’t Put All Your Eggs in One Basket What economic concept is being discussed? With your money spread out across a variety of assets (stocks, bonds, and cash, for example), you’re not hurt badly when any one asset does poorly. DIVERSIFICATION – TAKING ON MANY SMALL RISKS RATHER THAN ONE LARGE RISK.

DO NOW – ACTIVITY 9.1 THIS ACTIVITY REVIEWS THE SAVING EXPERIENCES OF CHARLAYNE AND MARCUS. IT ALSO EXPLAINS THE OTHER TWO RULES FOR BUILDING WEALTH OVER THE LONG TERM. READ ACTIVITY 9.1 AND ANSWER THE QUESTIONS. TURN INTO BIN WHEN FINISHED. DISCUSSION QUESTIONS – WHAT ARE THE THREE RULES OF WEALTH BUILDING? EXPLAIN HOW CHARLAYNE, THE ACCIDENTAL MILLIONAIRE, FOLLOWED ALL THREE RULES.

DO NOW - ACTIVITY 9.2 INDEPENDENTLY AND QUIETLY READ ACTIVITY 9.2
THERE IS TO BE NO TALKING IN YOUR BINDER WRITE DOWN ANY QUESTIONS YOU HAVE ABOUT THE TOPICS BEING DISCUSSED.

Forms of Saving and Investing: Some Benefits and Costs
Slide 9.14 Lesson 9 – Building Wealth over the Long Term Forms of Saving and Investing: Some Benefits and Costs Savings accounts: provide a small but steady return. Certificates of deposit: very safe, but instant access carries a penalty. Bonds: lending money to a corporation or government, with a promise of higher returns that those offered by bank savings accounts and CDs. Stocks: part ownership in a company, offering higher risks and, potentially, higher returns than some other investments. Real estate: the risks and benefits of being a landlord.

INVESTING YOUR MONEY EACH OF YOU HAVE $5,000.
AROUND THE ROOM THERE ARE 5 DIFFERENT MARKERS WITH DIFFERENT OPTIONS OF WHERE TO INVEST YOUR MONEY. FOR EXAMPLE – THOSE WHO PREFER STOCKS WILL STAND BY THE MARKER THAT SAYS STOCKS ONLY MOVE WHEN INSTRUCTED TO DO SO. STUDENTS WILL BE CALLED AT RANDOM TO EXPLAIN WHY THEY CHOSE THEIR DECISION. RETURN TO YOUR SEATS WHEN INSTRUCTED.

Investment Situations
Slide 9.15 Lesson 9 – Building Wealth over the Long Term Investment Situations You have $5,000 to invest. No other information is available. You have $4,000 that you’ll need six months from now. You inherited $10,000 from your great-aunt; she has suggested that you save it for use in your old age. You are just starting a career and can save $50 per month for retirement. A new baby arrives, and Mom and Dad plan to save $100 a month for the child’s college education.

The Pyramid of Risk and Return
Slide 9.16 Lesson 9 – Building Wealth over the Long Term The Pyramid of Risk and Return

Slide 9.17 Lesson 9 – Building Wealth over the Long Term Mutual Funds A mutual fund pools investor’s money. The fund puts its investors’ money into the markets on their behalf. In effect, investors own small amounts of many different assets. Mutual funds enable investors to avoid the risk that comes from owning any one asset. In other words, mutual funds make it easy to diversify.

DO NOW GET OUT ACTIVITY 9.2 WORK WITH A PARTNER TO ANSWER THE QUESTIONS FOR DISCUSSION IN YOUR BINDER QUESTION – WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF ALTERNATIVE FORMS OF SAVING AND INVESTING? SAVINGS ACCOUNT CERTIFICATES OF DEPOSIT BONDS STOCKS REAL ESTATE

Wall Marker 1 Savings Account

Wall Marker 2 Certificate Of Deposit

Wall Marker 3 Bonds

Wall Marker 4 Stocks

Wall Marker 5 Real Estate

CLOSURE – TURN INTO BIN IS IT POSSIBLE FOR ORDAINARY PEOPLE TO BECOME WELL OFF? WHY? WHAT ARE THE THREE RULES FOR BUILDING WEALTH?

Homework ANSWER ONE OF THE TWO ESSAY QUESTIONS IN 2-3 PARAGRAPHS
Roosevelt is 25 years old and has just started his job as an elementary-school teacher. He had never thought much about becoming financially independent until he attended a seminar called Three Rules to Help Teachers Become Millionaires. Based on what we have learned, explain the three rules that Roosevelt learned to consider. Will has saved $3,000. He intends to use it to make a down payment on a car. But he wants to buy the car in six months, not right now. He is thinking about using the $3,000 in the meantime to buy stock in a company he has been studying. Use the concepts of risk and reward to explain why this may not be his best alternative. Suggest a better alternative for him to consider. STUDY CONCEPTS FROM CLASS WORK ON BINDER

LESSON 4.3 POP QUIZ GET OUT A HALF SHEET OF PAPER.
PUT YOUR NAME, DATE AND BLOCK NUMBER AT THE TOP LABEL – LESSON 4.3 POP QUIZ NUMBER 1-4 SKIPPING LINES ONLY PUT DOWN THE CORRECT LETTER. NO COPYING. KEEP YOUR EYES ON YOUR OWN PAPER.

QUESTION #1 1. What are the three rules for building wealth over the long term? a. Start early, buy and hold, and diversify. b. Seek liquidity, loans and limits. c. Trade early, trade often, trade confidently. d. Short buy, short cover and buy on margin.

QUESTION #2 Trying to “time the market” by frequent buying and selling violates which rule of long-term savings? a. Start early b. Buy and hold c. Seize and desist d. Diversify

QUESTION #3 Which of the following would be considered the savings alternative with the highest risk and the highest reward? a. Bonds b. Real estate c. Certificate of deposit d. Stocks

QUESTION #4 Which of the following would be considered the savings alternative with the lowest risk and the lowest reward? a. Bonds b. Real estate c. Certificate of deposit d. Stocks

CORRECT ANSWERS SWITCH YOUR POP QUIZ WITH SOMEONE ELSE AT YOUR TABLE.
PUT YOUR NAME ON THE BOTTOM OF THE OTHER PERSONS QUIZ IF THEIR ANSWER IS CORRECT – LEAVE IT ALONE. IF THERE ANSWER IS WRONT PUT AN “X” THROUGH THE NUMBER. IF YOU CANNOT READ THEIR HAND WRITING. THEIR ANSWER IS WRONG. DO NOT TALK. RAISE YOUR HAND TO ANSWER THE QUESTIONS.

QUESTION #1 1. What are the three rules for building wealth over the long term? a. Start early, buy and hold, and diversify. b. Seek liquidity, loans and limits. c. Trade early, trade often, trade confidently. d. Short buy, short cover and buy on margin.

QUESTION #2 Trying to “time the market” by frequent buying and selling violates which rule of long-term savings? a. Start early b. Buy and hold c. Seize and desist d. Diversify

QUESTION #3 Which of the following would be considered the savings alternative with the highest risk and the highest reward? a. Bonds b. Real estate c. Certificate of deposit d. Stocks

QUESTION #4 Which of the following would be considered the savings alternative with the lowest risk and the lowest reward? a. Bonds b. Real estate c. Certificate of deposit d. Stocks

Lesson 4.4: There Is No Free Lunch in Investing
Objectives Students will be able to: Describe five types of investment risk. Describe the relationship between investment risk and investment reward. Distinguish between real and nominal rates of return. Describe the characteristics of several investments, including savings accounts, stocks, U.S. government savings bonds, mutual funds, and real estate. Analyze the pyramid of risk and reward. Compare and contrast the risks and rewards of several types of investments. Concepts Certificate of deposit Investment Money market mutual funds Rates of return Real estate Reward Savings account Stocks Stock index funds Stock mutual funds Types of risk U.S. government savings bonds

INVESTING Visual 2.1 – There is no Free Lunch in Investing
THERE IS ALWAYS AN INHERENT RISK ASSOCIATED WITH VARIOUS TYPES OF INVESTING. PEOPLE WHO INVEST WISELY USUALLY BENEFIT FROM THEIR INVESTMENTS IN THE LONG RUN. HOWEVER – ALL INVESTMENTS ARE NOT EQUAL Investment return is the additional income earned from saving or investing money. Risk is the uncertainty that an investor will receive the expected return. The greater the risk, the higher the expected return. Investors are paid to take risks. There is no free lunch in investing.

DO NOW – EXERCISE 21.1 READ EXERCISE 21.1 AND ANSWER THE QUESTIONS AT THE END IN COMPLETE SENTENCES. DISCUSSION QUESTIONS – What is the annual rate of return on an investment? If you earn $40 a year on a $500 investment, what is the annual rate of return? (8 percent [$40 ÷ $500 = .08 or 8 percent]) What is the relationship between the expected rate of return and the investment risk? If the annual nominal rate of return on an investment is 10 percent and the annual rate of inflation is 3 percent, what is the real rate of return? (7 percent [10 percent – 3 percent = 7 percent]) True, false, or uncertain, and why? "The Internet is the future of our economy. The prices of Internet stocks are bound to go up.“ UNCERTAIN OR FALSE True, false, or uncertain, and why? "This investment pays 30 percent a year and is perfectly safe. I put my mother's money into this investment.“ FALSE

VISUAL 21.1 – THE PYRAMID OF RISKS AND REWARDS

DO NOW – EXERCISE 21.2 WORK WITH THE PEOPLE AT YOUR TABLE TO COMPLETE EXERCISE 21.1 USE THE INFORMATION IN THE DESCRIPTION OF EACH INVESTMENT TO RANK ITS RISK AND REWARD. WRITE A BRIEF EXPLANATION OF THE REASONS FOR YOUR RATING

YOUR GROUPS ANSWERS MAY VARY
MATTRESS SAVINGS ACC CD MMMF STOCKS BONDS YOUR GROUPS ANSWERS MAY VARY

SIF SMF REAL ESTATE

4.4 Closure - WHAT IS THE MEANING OF THE FOLLOWING PHRASE: ‘THERE IS NO FREE LUNCH IN INVESTING.”? IS IT POSSIBLE TO LOSE ALL YOUR MONEY WHEN INVESTING IN STOCKS? CAN RISK BE COMPLETELY ELIMINATED WHEN INVESTING?

THE SAVINGS GAME EACH STUDENT HAS $5000 TO INVEST
YOU MUST CHOOSE THE FINANCIAL STRATEGY THAT BEST HELPS YOU ACHIEVE YOUR RISK-REWARD INVESTMENT GOALS WHEN ISNTRUCTED STAND BY THE MARKER ON THE WALL THAT YOU WISH TO INVEST YOUR MONEY IN. DO NOT MOVE UNTIL INSTRUCTED TO DO SO. BRING “THE SAVINGS GAME” DATA SHEET WITH YOU. COUNT THE NUMBER OF STUDENTS IN EACH INVESTMENT CATEGORY AND WRITE THEM ON “THE SAVINGS GAME” DATA SHEET. RETURN TO SEATS WHEN INSTRUCTED

MATTRESS WALL MARKER #1

REGULAR SAVINGS ACCOUNT
WALL MARKER #2

CERTIFICATE OF DEPOSIT
WALL MARKER #3

US GOVERNMENT SAVINGS BONDS
WALL MARKER #4

MONEY MARKET MUTUAL FUND
WALL MARKER #5

STOCKS WALL MARKER #6

STOCK MUTUAL FUND WALL MARKER #7

STOCK INDEX FUND WALL MARKER #8

Homework USE THE INFORMATION FROM “THE SAVINGS GAME” TO WRITE A 1-2 PARAGRAPH REPORT ON THE OVERALL CLASSROOM ATTITUDE TOWARD RISK AND REWARD. INCLUDE A BAR GRAPH (OR SOME OTHER CHART) TO DISPLAY THE DATA THAT YOU COLLECTED. IN YOUR REPORT MAKE SURE THAT YOU DEFEND YOUR OWN PERSONAL CHOICE OF INVESTMENT AND EXPLAIN HOW YOUR INVESTMENT MATCHES THE RISK/REWARD PROFILE THAT YOU FIND APPROPRIATE. STUDY CONCEPTS FROM CLASS WORK ON BINDER

Lesson 4.5: Financial Institutions in the U.S. Economy
Objectives Students will be able to: Identify the role of financial institutions in channeling saving to investment. Explain the difference between primary and secondary markets. Explain the difference between debt and equity financing. Explain how a small business can grow if it has a good business plan and access to funds. Describe the characteristics of proprietorships, partnerships, and corporations. Concepts Corporation Debt financing Economic investment Equity financing Financial institutions Financial investment Limited liability Partnership Primary markets Proprietorship Secondary markets Venture capitalist

TODAY!!!!!!! UNDERSTAND THE IMPORTANCE OF FINANCIAL INSTITUTIONS SUCH AS BANKS AND FINANCIAL MARKETS IN THE ECONOMY SMOOTHLY FUNCTIONING FINANCIAL MARKETS ARE CRITICAL TO NATIONS ECONOMY PEOPLE WHO HAVE SAVED A LOT OF MONEY (OLD PEOPLE) DO NOT HAVE HIGHLY PRODUCTIVE USES FOR THAT MONEY YOUNG ENTREPRENEURS COULD PRDUCTIVELY EMPLOY THAT MONEY AND PROVIDE FOR A RETURN TO THE SAVER FINANCIAL SYSTEM HELPS BOTH BY CHANNELING FUNDS FROM SAVINGS TO INVESTING RESULTS – ACCESS TO CAPITAL, RETURNS TO SAVERS AND CREATION OF WEALTH AND JOBS

ACTIVITY 10.1 – SAVE, LEND, BUY, SELL CARDS
THIS IS A TRADING ACTIVITY EACH OF YOU WILL BE GIVEN A CARD. LEAVE IT FACE DOWN UNTIL YOU ARE INSTRUCTED TO TURN IT OVER. YOU WILL HAVE TWO MINUTES TO FIND SOMEONE WHO WANTS EXACTLY WHAT YOU HAVE AND HAS EXACTLY WHAT YOU WANT DO NOT MOVE UNTIL INSTRUCTED TO DO SO. RETURN TO SEATS WHEN INSTRUCTED.

ACTIVITY 10.1 DISCUSSION QUESTIONS
How many of you were able to find someone who had what you wanted? How many of you were willing to lend money if you could earn interest? How many of you wanted to borrow money and pay interest on the loan? Why didn’t you borrow from and lend to one another? How many of you wanted to buy stock? How many of you wanted to sell stock? Why didn’t you buy from and sell to one another? How many of you wanted to buy bonds? How many of you wanted to sell bonds?

WHAT DID YOU JUST LEARN FROM THIS ACTIVITY?
COPY AND ANSWER QUESTION IN YOUR BINDER WHEN INSTRUCTED – TURN TO YOUR PARTNER AND SHARE YOUR RESPONSES BE PREPARED TO SHARE WITH CLASS

Matching Savers and Borrowers
Slide 10.1 Lesson 10 – Financial Institutions in the U.S. Economy Matching Savers and Borrowers It is hard to match up savers’ goals and borrowers’ requests directly. Financial institutions do this job; for example: Banks pool savers’ money together and lend from the pool. Life insurance companies use policyholders’ funds to build up a pool from which survivors can be paid. Pension funds use workers’ saved money to lend and invest, using the returns to finance the workers’ retirements. Financial institutions provide ways for people to save and invest. WORK BETTER THE MORE PEOPLE THEY BRING TOGETHER EXAMPLE – NEIGHBORHOOD YARD SALE OR EBAY???

DO NOW – ACTIVITY 10.2 YOU WILL LEARN ABOUT APPLE’S MISSING BILLIONAIRE—SOMEONE WHO MIGHT HAVE MADE BILLIONS OF DOLLARS FROM HIS EARLY INVESTMENT IN APPLE, BUT ENDED UP MAKING $1500. READ THE STORY AND STUDY THE CHART WITH NUMBERED STATEMENTS ABOUT DIFFERENT FORMS OF BUSINESS ORGANIZATION. WHEN YOU HAVE FINISHED READING AND STUDYING, MATCH THE NUMBERED STATEMENTS WITH THE LISTED STATEMENTS ABOUT APPLE’S FINANCIAL HISTORY. NOT ALL STATEMENTS WILL BE USED.

Advantages and Drawbacks
Slide 10.2 Lesson 10 – Financial Institutions in the U.S. Economy Advantages and Drawbacks Sole proprietorship advantages Easy to start up and shut down Proprietor has control over profits and operations Pride of being the only owner Lower taxes (no corporate income taxes) Sole proprietorship disadvantages 5. Personal responsibility for the business’s debts (unlimited liability) 6. Difficulty in raising funds 7. Responsibility for all losses 8. Management’s human resources limited to one person Partnership advantages 9. Easier to raise funds than fund raising in a sole proprietorship 10. Management’s human resources go beyond one person 11. Pride of being (with partners) the owners 12. Lower taxes (no corporate income taxes)

Advantages and Drawbacks (Cont.)
Slide 10.3 Lesson 10 – Financial Institutions in the U.S. Economy Advantages and Drawbacks (Cont.) Partnership disadvantages 13. Profits are split among partners, rather than going solely to proprietor 14. Conflicts between partners possible 15. Possible instability when a partner leaves 16. Personal responsibility for the business’s debts (unlimited liability) Corporation advantages 17. Transferability of shares to anyone who wants to own stock 18. Unlimited life, even after death of founders 19. Liability of shareholders is limited to their investment Corporation disadvantages 20. Costly to start up and shut down 21. Higher taxes (subject to corporate income taxes) 22. Separation of ownership (shareholders) from control (executives)

Apple’s Financial History-1
Slide 10.4 Lesson 10 – Financial Institutions in the U.S. Economy Apple’s Financial History-1 In the early years when Steve Jobs worked by himself, he knew he was good at marketing but missed the technical skills of his friend Steve Wozniak. STATEMENT #8 Worried about his responsibility for Apple’s debts, Ronald Wayne left the young company after only two weeks. STATEMENT #16 The death of Steve Jobs in 2011 was difficult for Apple, but the corporation continued operations without interruption. STATEMENT #18

Apple’s Financial History-2
Slide 10.5 Lesson 10 – Financial Institutions in the U.S. Economy Apple’s Financial History-2 Apple shareholders have worried about executives’ determination to spend whatever money it takes to defeat the rival Smartphone operating system, Android, fearing the impact on profits and the value of their investment. STATEMENT #22 When Steve Jobs and Steve Wozniak were running Apple in the early days, they had disputes about required components for new designs. STATEMENT #14 It was easy for Steve Wozniak to get paid as a free-lancer for occasional technology jobs in California in the 1970s. STATEMENT #1

DO NOW – ACTIVITY 10.3 (COPY NOTES)
“GOING PUBLIC” IS A TERM THAT APPLIES TO AN INTIAL PUBLIC OFFERING OF STOCK OFTEN THE CONCLUDING PHASE OF SUCCESSFUL STARTUP COMPANY IPOS – ARRANGED IN THE PRIMARY MARKET COMPANIES FACE ADDITIONAL REGULATIONS AND REPORTING REQUIREMENTS WHEN THEY GO PUBLIC SECONDARY MARKET (EXISTING SHARES CHANGE HANDS) DAILY STOCK MARKET NEWS IS ABOUT SECONDARY MARKET COMPANIES DO NOT RECEIVE FUNDS WHEN STOCK TRADES ON SECONDARY MARKET READ THE ACTIVITY AND ANSWER THE DISCUSSION QUESTIONS AT THE END IN COMPLETE SENTENCES Turn into bin when finished

A college endowment fund buys 40,000 shares of IBM stock on the New York Stock Exchange. secondary An excited reporter says, “Intel Corp. shares skyrocketed in trading today, with investors pushing the share price sharply higher.” Facebook, formerly a secretive and closely held enterprise, found that it would have to disclose financial data it had kept hidden before its widely celebrated Initial Public Offering. primary A teacher leading a class in a stock market competition says, “Participants may choose any stock traded on the major exchanges.” The evening business news report says, “Venture capitalists found that a big gamble paid off today, walking away with a small fortune when the long-shot technology company GACC went public.”

CLOSURE – COMPLETE IN BINDER
WHAT IS AN IPO? WHAT IS THE DIFFERENCE BETWEEN PRIMARY AND SECONDARY MARKETS? WHAT IS THE PRIMARY ROLE OF FINANCIAL INSTITUTIONS?

Homework ANSWER EITHER OF THE FOLLOWING TWO QUESTIONS IN A PARAGRAPH
Imagine a world in which a used car buyer would arrange to obtain an auto loan directly with Someone seeking to lend money. Describe what it would take to arrange a $12,000 loan with monthly payments in such a world. In the real world, do banks need to find someone willing to lend $12,000 in order to make the loan? Explain your answer. History records that, in its early days, Apple Computer had difficulty coming up with the money it needed to operate. Banks and venture capitalists were unsure that Apple’s business would succeed well enough to guarantee repayment. Were the banks and venture capitalists being overly cautious, or should they have foreseen Apple’s success? Explain your answer. STUDY CONCEPTS FROM CLASS WORK ON BINDER

QUESTION #1 What is the primary function of the economy’s financial institutions? a. Bringing borrowers and lenders together b. Manufacturing real goods and services c. Regulating the supply of money and the U.S. government budget d. Making sure people have enough money to meet their monthly expenses

QUESTION #2 Which of the following is considered a financial institution? a. A manufacturer of farm equipment b. A life insurance company c. A small business seeking an operating loan d. A saver interested in getting a good return at a low risk

QUESTION #3 Which of the following is considered a major disadvantage of organizing a business enterprise as a partnership? a. The partnership has an unlimited life. b. The partnership is the costliest form of business organization to start up and shut down. c. The partnership is required to register as a public corporation with the government. d. The partnership makes all of the partners liable for the obligations of the partnership.

QUESTION #4 What does it mean for a corporation to “go public”?
a. It advertises and sells its products publicly for the first time. b. It uses publicly funded facilities such as airports and highways for the first time. c. It makes an Initial Public Offering (IPO) of its stock. d. It becomes regulated by a state or federal Public Utilities Commission.

QUESTION #1 What is the primary function of the economy’s financial institutions? a. Bringing borrowers and lenders together b. Manufacturing real goods and services c. Regulating the supply of money and the U.S. government budget d. Making sure people have enough money to meet their monthly expenses

QUESTION #2 Which of the following is considered a financial institution? a. A manufacturer of farm equipment b. A life insurance company c. A small business seeking an operating loan d. A saver interested in getting a good return at a low risk

QUESTION #3 Which of the following is considered a major disadvantage of organizing a business enterprise as a partnership? a. The partnership has an unlimited life. b. The partnership is the costliest form of business organization to start up and shut down. c. The partnership is required to register as a public corporation with the government. d. The partnership makes all of the partners liable for the obligations of the partnership.

QUESTION #4 What does it mean for a corporation to “go public”?
a. It advertises and sells its products publicly for the first time. b. It uses publicly funded facilities such as airports and highways for the first time. c. It makes an Initial Public Offering (IPO) of its stock. d. It becomes regulated by a state or federal Public Utilities Commission.

Lesson 4.6: Finding Financial Information Online
Objectives Students will be able to: Read stock, mutual fund and corporate bond tables presented in online sources. Demonstrate an understanding of the data presented in the tables. Follow a security online. Concepts Closing price Dividend Net asset price Price/earnings ratio (P/E ratio) Stock symbol Trading volume Yield Today – learn how to read and understand information presented on financial websites; example sample listings

Lesson 4.6 Notes (COPY) Making investment decisions careful investors examine the following – Detailed information about Stocks Mutual funds Bonds Up-to-date info available online

DO NOW – ACTIVITY 4.1 READ OVERVIEW OF FINANCIAL REPORTING
COPY AND ANSWER IN BINDER – WHAT SORT OF INFORMATION IS FOUND IN THE FINANCIAL PAGES?

Lesson 4 – Finding Financial Information Online
Slide 4.1 Lesson 4 – Finding Financial Information Online Stock listing: Boeing

DO NOW – ACTIVITY 4.1 READ THE ONLINE STOCK LISTINGS AND EXPLANATION ON ACTIVITY 4.1 & ANSWER THE STOCK LISTING QUESTIONS WITH A PARTNER STOCK LISTING QUESTIONS – WHAT IS THE 52 WEEK HIGH STOCK PRICE FOR BOEING? $80.65 BY 10:37A ON THAT DECEMBER 19, HOW MANY SHARES OF BOEING STOCK HAD BEEN TRADED? 485,293 WHAT IS THE 52 WEEK LOW STOCK PRICE FOR BOEING? $56.01 WHAT IS THE ANNUAL DIVIDEND FOR BOEING? $1.76 WHAT WAS THE CLOSING PRICE OF BOEING STOCK ON THE PREVIOUS DAY OF TRADING? $71.01 WHEN THE WEBSITE WAS CONSULTED WAS BOEING STOCK UP OR DOWN FOR THE DAY? HOW MUCH? WHAT PERCENTAGE WAS THAT? $.29; .41% WHAT IS THE PERCENTAGE YIELD FOR BOEING? 2.5% WHAT IS THE PRICE/EARNINGS RATIO FOR BOEING? 14.11

DO NOW – ACTIVITY 4.1 READ THE REMAINDER OF ACTIVITY 4.1
ANSWER THE DISCUSSION QUESTIONS WHAT IS REVEALED ABOUT A COMPANY BY THE 52 WEEK HIGH AND LOW? WHY MIGHT DIVIDENDS BE IMPORTANT TO SOME PEOPLE? WHEN DO INVESTORS EXPECT TO HAPPEN WHEN THE P/E RATIO OF A COMPANY IS HIGH FOR ITS INDUSTRY?

LESSON 4.6 NOTES (COPY) MANY INVESTORS PURCHASE MUTUAL FUNDS
MUTUAL FUND - POOL OF MONEY INVESTED BY A MANAGER ON BEHALF OF FUND SHAREHOLDERS GOAL = INCREASE THE VALUE OF EACH SHARE OF FUND FOR ITS SHAREHOLDERS OFFERS INVESTORS CERTAIN ADVANTAGES PROFESSIONAL MANAGEMENT REDUCTION OF RISK THROUGH DIVERSIFICATION

Mutual fund listing: Small-cap
Slide 4.2 Lesson 4 – Finding Financial Information Online DO NOW – ACTIVITY 4.2 – WORK WITH A PARTNER. READ ACTIVITY 4.2 AND ANSWER THE QUESTIONS IN COMPLETE SENTENCES DISCUSSION QUESTIONS – WHAT IS THE NET ASSET VALUE OF THE VANGUARD SMALL-CAP INDEX FUND? $32.22 WHAT IS THE YEAR TO DATE PERCENTAGE RATE OF RETURN OF THE VANGUARD SMALL-CAP INDEX FUND? -3.02% WHAT IS THE NET CHANGE IN THIS FUND’S PRICE? -.61 OR = -1.86% WHAT IS THE CURRENT YIELD OF THIS FUND? 1.07% 11/30 IF AN INVESTOR PURCHASED 100 SHARES OF THE VANGUARD SMALL-CAP INDEX FUND AT THE CLOSE OF TRADING ON DECEMBER 18, HOW MUCH WOULD THE INVESTOR PAY? $32.22 X 100 = $3,222 Mutual fund listing: Small-cap

Bond listing: Sprint Nextel
Slide 4.3 Lesson 4 – Finding Financial Information Online DISCUSSION QUESTIONS – WHAT IS THE COUPON RATE OF INTEREST ON THE SPRINT NEXTEL BOND? 9.25% WHAT IS THE CURRENT PRICE IN DOLLARS OF THE SPRINT NEXTEL BOND IF ITS ORIGINAL PRICE WAS $1000? $1,180 = $1,000 x 118/100 WHAT IS THE ANNUAL PERCENTAGE RETURN THAT WOULD BE RECEIVED BY AN INVESTOR HOLDING THE SPRINT NEXTEL BOND UNTIL THE MATURITY DATE? 6,884% THE FITCH GROUP RATED A RAYTHEON 2018 BOND AS “A” ON THE SAME DAY THAT THIS SPRINT NEXTEL LISTING APPEARED. IN THE OPINION OF THE FITCH GROUP, WHICH BOND HAD A LOWER CREDIT RISK RAYTHEON OR SPRINT NEXTEL? HOW CAN YOU TELL? DO NOW – ACTIVITY 4.3 –READ ACTIVITY 4.2 AND ANSWER THE QUESTIONS IN COMPLETE SENTENCES Bond listing: Sprint Nextel SPRINT NEXTEL CORP As of 22-Dec OVERVIEW Price: 118.00 Coupon (%): 9.250 Maturity Date: 15-Apr-2022 Yield to Maturity (%): 6.884 Current Yield (%): 7.839 Rating from Rating Service: BB Coupon Payment Frequency: Semi-Annual First Coupon Date: 15-Oct-1992 Type: Corporate Callable: No

DO NOW ACTIVITY 4.4 FOR THE NEXT 10 SCHOOL DAYS YOU WILL BE TRACKING STOCKS ONLINE EACH STUDENT WILL BE GIVEN A DIFFERENT COMPANY TO TRACK. AT THE BEGINNING OF EACH CLASS PERIOD YOU WILL NEED TO FILL OUT THE CHART. USE YOUR CELL PHONE OR LAPTOP. YOU CAN USE ANY OF THE FOLLOWING WEBSITES – YAHOO FINANCE – FINANCE.YAHOO.COM GOOGLE FINANCE – FINANCE.GOOGLE.COM CNN MONEY – MONEY.CNN.COM AFTER THE 10 DAYS, ANSWER THE DISCUSSION QUESTIONS. BE PREPARED TO SHARE YOUR FINDINGS WITH THE CLASS.

ACTIVITY 4.4 COMPANIES MICROSOFT MCDONALDS SAMSUNG FORD WALMART GOOGLE
HEWLETT PACKARD DELL EBAY INC APPLE BANK OF AMERICA BURGER KING COCA-COLA VERIZON ACME SHOP RITE NIKE AT&T PEPSI BUDWEISER EACH STUDENT WILL SELECT AT RANDOM ONE OF THE COMPANIES LISTED ABOVE. YOU MAY NOT CHANGE YOUR COMPANY. YOU MAY NOT TRADE YOUR COMPANY WITH A CLASS MATE.

LESSON 4.6 CLOSURE – TURN INTO BIN
IN YOUR OWN WORDS, DESCRIBE WHAT A PRICE/EARNINGS (P/E) RATION IS. EXPLAIN THE DIFFERENCES BETWEEN THE FOLLOWING STOCKS BONDS MUTUAL FUNDS

Homework ACTIVITY 4.5 SCAVENGER HUNT STUDY CONCEPTS FROM CLASS
WORK ON BINDER

QUESTION #1 IN A STOCK TABLE, “DIV” STANDS FOR DIVIDEND. A DIVIDEN IS…
A DAILY PAYMENT MADE TO A STOCKHOLDER A MEASURE OF A COMPANY DIVERSIFICATION A SHARE OF A COMPANY’S NET PROFITS PAID TO STOCKHOLDERS THE CLOSING STOCK PRICE

QUESTION #2 2. IN A STOCK TABLE, “YIELD” REPRESENTS
A. THE OPENING STOCK PRICE FOR THE TRADING DAY B. THE DIVIDEND AS A PERCENTAGE OF THE PRICE C. THE PERCENTAGE OF STOCK OWNED BY THE INVESTOR D. THE RATIO OF PRICE TO EARNINGS

QUESTION #3 3. IF YOU INVEST IN A MUTUAL FUND, YOU BECOME A. A SHAREHOLDER IN THE FUND B. A SHAREHOLDER IN A STOCK C. A SHAREHOLDER IN BONDS D. A SHAREHOLD OF A NON-STOCK CORPORATION

QUESTION #4 4. THE “YIELD TO MATURITY” IN A BOND TABLE REPRESENTS THE RETURN A BONDHOLDER WOULD GET BY BUYING A BOND AT CURRENT PRICES AND A. HOLDING IT FOR ONE YEAR B. HOLDING IT FOR 10 YEARS C. HOLDING IT TO COLLECT THE REMAINING INTEREST BUT NOT THE REPAYMENT OF PRINCIPAL D. HOLDING IT UNTIL ALL INTEREST AND PRINCIPAY REPAYMENTS HAD BEEN MADE

QUESTION #1 IN A STOCK TABLE, “DIV” STANDS FOR DIVIDEND. A DIVIDEN IS…
A DAILY PAYMENT MADE TO A STOCKHOLDER A MEASURE OF A COMPANY DIVERSIFICATION A SHARE OF A COMPANY’S NET PROFITS PAID TO STOCKHOLDERS THE CLOSING STOCK PRICE

QUESTION #2 2. IN A STOCK TABLE, “YIELD” REPRESENTS
A. THE OPENING STOCK PRICE FOR THE TRADING DAY B. THE DIVIDEND AS A PERCENTAGE OF THE PRICE C. THE PERCENTAGE OF STOCK OWNED BY THE INVESTOR D. THE RATIO OF PRICE TO EARNINGS

QUESTION #3 3. IF YOU INVEST IN A MUTUAL FUND, YOU BECOME A. A SHAREHOLDER IN THE FUND B. A SHAREHOLDER IN A STOCK C. A SHAREHOLDER IN BONDS D. A SHAREHOLD OF A NON-STOCK CORPORATION

QUESTION #4 4. THE “YIELD TO MATURITY” IN A BOND TABLE REPRESENTS THE RETURN A BONDHOLDER WOULD GET BY BUYING A BOND AT CURRENT PRICES AND A. HOLDING IT FOR ONE YEAR B. HOLDING IT FOR 10 YEARS C. HOLDING IT TO COLLECT THE REMAINING INTEREST BUT NOT THE REPAYMENT OF PRINCIPAL D. HOLDING IT UNTIL ALL INTEREST AND PRINCIPAY REPAYMENTS HAD BEEN MADE

Lesson 4.7: Researching Companies
Objectives Students will be able to: Develop criteria to use in choosing stocks. Use criteria to choose among stock investment possibilities. Identify the cost of seeking more information. Recognize and apply basic techniques of fundamental analysis. Concepts Alternatives Choice Fundamental analysis Opportunity Cost Scarcity TODAY – LEARN HOW TO RESEARCH COMPANIES TO INCREASE CHANCES FOR SUCCESS IN MAKING INVESTMENTS

LESSON 4.7 NOTES (COPY) NEW YORK STOCK EXCHANGE (NYSE)
OLDEST STOCK MARKET IN US 8,000 FIRMS LISTED NASDAQ STOCK MARKET THOUSANDS MORE LISTED HOW DOES ONE PICK THE STOCKS MOST LIKELY TO INCREASE IN PRICE?

Thinking Economically About Researching Stocks
Slide 11.1 Lesson 11 – Researching Companies Thinking Economically About Researching Stocks Investors face scarcity: Investors’ time is limited while the information available regarding stocks is vast. Here are some recommendations to consider: Recognize that you cannot know it all. Select a few companies to research. Then follow their progress closely. Find a few good sources of information about stocks. Many online sources have great data and are easy and fast to use. Stop looking for new information when you think the benefits received from more information are less than the costs of additional research.

Lesson 11 – Researching Companies
Slide 11.2 Lesson 11 – Researching Companies Surprises Are Rare Many individuals spend a great deal of time and effort trying to find companies whose stock prices might increase faster than average for the market. Many financial institutions – brokerage companies, banks, life insurance companies – spend even more time and effort trying to identify companies whose stock prices might increase faster than average for the market. It is very difficult to earn unusual gains in the stock market because most of the information about most companies is already know. People who earn above-average returns from their stocks are usually surprised. But it is hard even for experienced investors to find surprises in the market.

DO NOW – ACTIVITY 1.1 PROVIDES A USEFUL TOOL FOR SUMMARIZING IMPORTANT CHARACTERISTICS OF VARIOUS COMPANIES NOTES (COPY) ECONOMISTS BELIEVE IT IS NOT POSSIBLE TO PREDICT WHICH STOCKS WILL OUTPERFORM OTHERS STOCKS PICKED AT RANDOM SOMETIES PERFORM AS WELL AS STOCKS PICKED BY EXPERTS EACH STUDENT WILL SELECT A WELL-KNOWN COMPANY ENTER THE NAME INTO THE CHART LABELED COMPANY SELECTED IN THE CLASSROOM DRAWING

DO NOW – ACTIVITY 11.1 RANDOM SELECTION –
HAVE YOU NOTICED A COMPANY THAT SEEMS POPULAR? ITS STORES ARE ALWAYS CROWDED. YOUR FRIENDS MAKE FAVORABLE COMMENTS ABOUT ITS PRODUCTS OR SERVICES. IDENTIFY THREE COMPANIES WHOSE PRODUCTS YOU BUY, STORES YOU SHOP IN, GAMES YOU PLAY ADD THE NAMES OF THE THREE COMPANIES TO THE REMAINING CHARTS IN ACTIVITY 11.1

Lesson 11 – Researching Companies
Slide 11.3 Lesson 11 – Researching Companies Fundamental Analysis Fundamental stock analysts examine the basic performance of a company and use results to make investment decisions. They pay special attention to these factors: Size of the company Changes in sales Changes in earnings Demand for the company’s goods and services

Stock-Selection Data Used by Fundamental Stock Analysts
Slide 11.4 Lesson 11 – Researching Companies Stock-Selection Data Used by Fundamental Stock Analysts Symbol – abbreviation of the company name used for trading Stock exchange – NYSE and NASDAQ Share price – price of the stock Market capitalization – measure of the size of a company, based on dollar value of the company Price/earnings ration – recent stock price divided by 12 months of earnings per share Annual revenue or sales – past 3-5 years point to how well a company is doing in its sales Earnings per share – measure of how a company’s profits compare to the number of shares

THINK/PAIR/SHARE COPY AND ANSWER QUESTION IN BINDER –
WHAT SORT OF INVESTOR MIGHT WISH TO BUY MICROSOFT? SHARE RESPONSE WITH PARTNER BE PREPARED TO SHARE WITH CLASS

ACTIVITY 4.7 NOTES FOLLOWING EXPERT ADVICE –
LET OTHER PEOPLE DO RESEARCH FOR YOU SO THAT YOU CAN FOLLOW RECOMMENDATIONS OF EXPERTS IN THE FIELD STOCK ANALYSTS – PROFESSIONALS WHO STUDY STOCKS FOR A LIVING RECOMMENDATIONS TO BUY, SELL OR HOLD STOCKS CAN BE FOUND ONLINE COMPLETE ACTIVITY 11.1

LESSON 4.7 CLOSURE – TURN INTO BIN
EXPLAIN THE METHODS IN WHICH YOU CAN RESEARCH COMPANIES.

Homework ANSWER ONE OF THE FOLLOWING EXTENDED RESPONSE QUESTIONS
RESPOND TO THE FOLLOWING STATEMENT, COMMENTING ON POTENTIAL ADVANTAGES AND DISADVANTAGES OF SELECTING STOCKS AT RANDOM: “PEOPLE WASTE THEIR TIME RESEARCHING STOCKS. JUST PICK ONE! IF THE MARKET GOES UP, THE STOCK WILL GO UP.” RESPONE TO THE FOLLOWING STATEMENT – “Investing in individual stocks is a good way to gain wealth, but only if you are willing to do the work. Investors must learn everything about the stocks they own. They should read extensively in financial articles, a wide range of annual reports, background news from at least two newspapers, as well as Value Line Reports. If you can’t do this homework, you should not invest in individual stocks.” STUDY CONCEPTS FROM CLASS WORK ON BINDER

Question #1 Which of the following is used by fundamental analysts to research a stock? A. the P/E ratio B. Resistance level C. Support level D. The S/E ratio

Question #2 There are thousands of stocks, but investors have limited time and resources to use in researching stocks. The economic concept that refers to this problem is… A. inflation B. multiple propensity to consume C. scarcity D. density

Question #3 Random selection of stocks is the easiest and least costly method of selecting stocks for investment. Why don’t people use this method more often? A. it is too easy to make money this way. People would feel guilty B. companies do not allow investors to choose stocks in this manner C. governmental regulation does not permit investors to select stocks in this manner D. investors think the benefits of dating more research outweigh the costs of the research

Question #1 Which of the following is used by fundamental analysts to research a stock? A. the P/E ratio B. Resistance level C. Support level D. The S/E ratio

Question #2 There are thousands of stocks, but investors have limited time and resources to use in researching stocks. The economic concept that refers to this problem is… A. inflation B. multiple propensity to consume C. scarcity D. density

Question #3 Random selection of stocks is the easiest and least costly method of selecting stocks for investment. Why don’t people use this method more often? A. it is too easy to make money this way. People would feel guilty B. companies do not allow investors to choose stocks in this manner C. governmental regulation does not permit investors to select stocks in this manner D. investors think the benefits of dating more research outweigh the costs of the research

Lesson 4.8: How to Buy and Sell Stocks and Bonds
Objectives Students will be able to: Explain how financial markets help investors. Describe how a transaction is made in an organized stock market such as the New York Stock Exchange. Evaluate opinions available to investors for buying and selling stocks and Bonds Concepts Bond Broker Dividend reinvestment plan (DRIP) Financial market Investor Stocks Today – learn about buying on margin and selling short

IMAGINE…. IMAGINE THAT YOU ARE A FOOTBALL COACH.
IT IS A VERY CLOSE GAME AND YOU HAVE JUST SCORED A TOUCHDOWN PUTTING YOUR TEAM UP BY 5 POINTS. YOU NEED TO DECIDE WHETHER TO SEND THE KICKER IN FOR AN EXTRA POINT ATTEMPT OR GO FOR TWO. SINCE ITS SAFER TO KICK, WHY DON’T COACHES ALWAYS GO FOR THE ONE EXTRA POINT? ANSWER QUESTION IN BINDER BE PREPARED TO SHARE WITH CLASS

Lesson 4.8 Notes (COPY) One important rule –
EVERTHING HAS A COST! APPLIED TO STOCKS – HIGHER THE EXPECTED RETUN ON A GIVEN PURCHASE THE RISKIER THAT PURCHASE CAN BE BUYERS MUST BE COMPENSATED METHODS TO INCREASE RETURN BUYING ON MARGIN AND SELLING SHORT

Bull Markets and Bear Markets
Slide 8.1 Lesson 8 – Buying on Margin and Selling Short Bull Markets and Bear Markets A bull market is a stock market with rising prices over an extended time. Buying on margin can increase gains in a bull market. A bear market is a stock market with falling prices over an extended period of time. Selling short can increase gains in a bear market.

ACTIVITY 8.1 – A MARGINAL PLAY
PARTICIPATING IN A PLAY TO LEARN ABOUT BUYING ON MARGIN ROLES – KATIE STOCKBROKER LUKE JEREMY MODERATOR REMAINDER OF CLASS IS TO REMAIN QUIET AND FOLLOW ALONG

ACTIVITY 8.1 – DISCUSSION QUESTIONS ANSWER QUESTIONS IN BINDER
WHAT IS “BUYING ON MARGIN”? WHEN YOU BUY ON MARGIN, HOW MUCH OF THE PURCHASE PRICE MUST YOU PUT UP IN CASH? WHO DETERMINES THIS PERCENTAGE? WHY DO YOU THINK THERE IS A LIMIT ON THE AMOUNT OF MONEY BROKERS CAN LEND? WHAT ARE THE ADVANTAGES OF BUYING STOCK ON MARGIN? WHAT ARE THE DISADVANTAGES OF BUYING STOCK ON MARGIN?

Margin Buying: The Good and the Ugly
Slide 8.2 INVESTOR USES $100 OF THEIR OWN MONEY AND BORROWS $900 INVESTOR PURCHASES STOCK USING $100 OF THEIR OWN MONEY Lesson 8 – Buying on Margin and Selling Short Margin Buying: The Good and the Ugly Own Capital Borrowed Capital P1 Shares P2 Position Profit Return No Leverage Price Increases 10% $100 $0 1 $110 $10 10% Leverage 10-1 Asset Price Increases 10% $900 10 $1,100 100% $200 Leverage 10-1 Asset Price Decreases 10% $90 -$100 -100% INVESTOR BUYING $100 AND BORROWS $900 POTENTIAL ADVANTAGES AND RISK ASSOCIATED WITH BUYING STOCKS ON MARGIN RISKS MAY BE ACCEPTABLE BUT ONLY IF INVESTOR THINKS THAT TAKING CHANCE CAN BE WORTHWHILE PERSON WHO BUYS STOCKS ON MARGIN IS “LEVERAGING” OR BUYING STOCKS WITH BORROWED MONEY

DO NOW – ACTIIVTY 8.2 MARGIN PROBLEMS
READ DOWN TO “MARGIN WORKSHEET” WORK IN SMALL GROUPS TO ANSWER THE QEUSTIONS IN THE THREE WORKSHEET SITUATIONS TURN INTO BIN WHEN FINISHED

DO NOW ACTIVITY 8.2 SITUATION 1
MRS. SMITH BUYS ON MARGIN 100 SHARES OF COCA-COLA STOCK AT $30 PER SHARE THE TOTAL MARKET VALUE OF THE STOCK MRS. SMITH BUYS IS $3,000 THE AMOUNT OF MONEY THAT MRS. SMITH MUST PAY FOR THIS PURCHASE (HER INITIAL MARGIN REQUIREMENT) IS $1,500. THE MAXIMUM AMOUNT OF MONEY THAT A BROKERAGE FIRM COULD LEND MRS. SMITH (HER DEBT) IS $1,500. MRS. SMITH’S EQUITY IS $1,500

THE VALUE OF MRS. SMITH’S SHARES OF COCA-COLA RISES TO $40 PER SHARE THE MAREKT VALUE OF COCA-COLA SHARES IN MRS. SMIT’S ACCOUNT IS NOW $4,000 THE AMOUNT OF MONEY SHE OWES THE BROKERAGE FIRM (HER DEBT) IS $1,500. MRS. SMITH’S EQUITY IS $2,500.

THE VALUE OF MRS. SMITH’S SHARES OF COCA-COLA FAILS TO $20 PER SHARE THE MARKET VALUE OF COCA-COLA SHARES IN MRS. SMITH’S ACCOUNT IS NOW $2,000 THE AMOUNT OF MONEY SHE OWES THE BROKERAGE FIRM (HER DEBT) IS $1,500. MRS. SMITH’S EQUITY IS $500

ACTIVITY 8.2 WRAP-UP (BINDER)
WHAT DO THESE SITUATIONS SUGGEST ABOUT WHEN IT MIGHT, OR MIGHT NOT, MAKE SENSE FOR AN INVESTOR TO TAKE A RISK BY BUYING ON MARGIN?

SHORT SELLING NOTES (COPY)
SHORT SELLING – TECHNIQUE SOME INVESTORS USE TO INCREASE THEIR PROFITS IN A BEAR MARKET HOW WOULD YOU FEEL IF SOMEONE BORROWED YOUR SKATEBOARD AND THEN SOLD IT, PROMISING TO PAY YOU BACK WITH A NEW SKATEBOARD? HOW COULD THIS PAY OFF FOR BOTH THE LENDER AND BORROWER? SUPPOSE THE BORROW COULD SELL THE BORROWED SKATEBOARD FOR MORE MONEY THAN IT WOULD TAKE THE BUY A NEW ONE WHAT DIFFERENCE MIGHT THAT MAKE?

BORROW THE STOCK AND SELL THE STOCK RIGHT AWAY AT CURRENT HIGH MARKET PRICE REPAY STOCK LOAN BY PURCHASING SHARES AND GIVING THEM BACK TO LENDER BECAUSE THEY BOUGHT SHARES FOR REPAYMENT AT LOWER PRICE, THEY HAVE MADE A PROFIT REPAID SHARES ARE JUST LIKE THE BORROWED SHARES

HOW COULD THE SELLING OF THE BORROWED SKATEBOARD BRING ABOUT A LOSS? THE BORROWER SELLS THE SKATEBOARD BUT DOES NOT EARN ENOUGH MONEY TO BUY A NEW SKATEBOARD THE BORROWER NOW HAS TO BUY THE LENDER A NEW SKATEBOARD USING THEIR OWN MONEY SUPPOSE SOMONE SELLS BORROW STOCK PLANNING TO REPAY THE LOAN WITH STOCK BOUGHT AT LOWER PRICE PRICE GOES UP AND BORROWER MUST BUY THE STOCK TO REPAY THE LOAN AT A HIGHER PRICE, LOSING MONEY ON THE DEAL

DO NOW – ACTIVITY 8.3 A SHORT MARKET PLAY
CONDUCT A PLAY ABOUT SELLING SHORT ROLES MODERATOR STOCKBROKER LUKE JEREMY KATIE REMAINDER OF CLASS IS TO REMAIN QUIET AND FOLLOW ALONG

ANSWER IN BINDER HOW WOULD YOU DESCRIBE A SHORT SALE? WHY IS A SHORT SALE THE OPPOSITE OF THE USUAL STOCK TRADE? WHAT IS A SHORT COVER? WHY DO PEOPLE SELL STOCK SHORT? WHY MIGHT THE PRICE OF A STOCK FALL? WHY IS SELLING SHORT RISKY? WHAT COSTS ARE INVOLVED IN SELLING SHORT? WHY MUST AN INVESTOR OPEN A MARGIN ACCOUNT WITH AT LEAST 50% OF THE VALUE OF THE SHORT SALE IN THE ACCOUNT?

DO NOW – ACTIVITY 8.4 MARGIN PROBLEMS
READ THE DIRECTIONS ON ACTIVITY 8.4 WORK WITH A PARTNER TO COMPLETE THE THREE SITUATIONS

ACTIVITY 8.4 SHORT SALE (200x$50) $10,000 Broker’s Fee -$200 Proceeds $9,800 Short cover (200x$40) $8,000 Broker’s Fee +$160 Cost $8,160 Proceeds from the short sale ($9,800) – Cost of short cover ($8,160) = Gain ($1,640) SITUATION 1 A STOCK OWNER SELLS SHORT 200 SHARES OF A STOCK AT $50 PER SHARE. HE BUYS THEM BACK FOR REPLACEMENT (SHORT COVERS) AT $40 PER SHARE. DID HE MAKE A GAIN OR LOSS? GAIN HOW MUCH? $1,640

Activity 8.4 Short sale (100 x $20) $2,000 Broker’s Fee -$40 Proceeds $1,960 Short cover (100 x $40) $4,000 Broker’s fee +80 Cost $4,080 Proceeds from short sale ($1,960) – Cost of short cover ($4,080) = Loss ($2,120) Situation 2 A stock owner sells short 100 shares of XYZ Corporation at $20 per share and has to short cover them at $40. Did he make a gain or loss? Loss How much? $2,120

Activity 8.4 Situation 3 At stock owner sells short 100 shares of Apple Pie Corporation at $50 per share. The initial margin requirement is 50%. How much money must be deposited in the margin account? $2,500, calculated as $5,000 x .5

Lesson 4.8 Closure – turn into bin
How can bullish stock buyers increase their gains or returns? How can bearish stock buyers increase their gains or returns? Why do most stock buyers avoid buying on margin or selling short?

Homework Answer following constructed response questions –
You sell 100 shares of Intel stock short at $50 per share. Four months later, you short cover it for $10. The brokerage ﬁ rm receives a 2 percent commission on the short sale and short cover. How much gain will you earn on this transaction? Show your work. You buy $10,000 of Nike stock on 50 percent margin. The price falls 10 percent. How much equity do you have in the stock? By what percentage has your equity increased or decreased? Show your work. STUDY FOR TEST COMPLETE BINDER

Question #1 What does it mean to “sell short”?
a. Selling short means selling stock soon after you buy it. b. Selling short means buying stock on credit. c. Selling short means selling your own stock when you think it will go down in price. d. Selling short means selling stock you don’t own.

Question #2 If a stock buyer buys on margin, what does she think will happen to the price of the stock? a. It will increase quickly. b. It will increase slowly. c. It will decrease quickly. d. It will stay the same

Question #3 If a stock buyer sells a stock short, what does he think will happen to the price of the stock? a. It will decrease quickly. b. It will increase slowly. c. It will increase quickly. d. It will stay the same.

Question #4 What is a short cover?
a. A stock buyer buys back and returns stock she borrowed from a broker. b. A stock buyer keeps her stock for no longer than one month. c. A stock buyer sends out a margin call. d. A stock buyer is short on the money he needs to pay back a margin purchase.

Question #1 What does it mean to “sell short”?
a. Selling short means selling stock soon after you buy it. b. Selling short means buying stock on credit. c. Selling short means selling your own stock when you think it will go down in price. d. Selling short means selling stock you don’t own.

Question #2 If a stock buyer buys on margin, what does she think will happen to the price of the stock? a. It will increase quickly. b. It will increase slowly. c. It will decrease quickly. d. It will stay the same

Question #3 If a stock buyer sells a stock short, what does he think will happen to the price of the stock? a. It will decrease quickly. b. It will increase slowly. c. It will increase quickly. d. It will stay the same.

Question #4 What is a short cover?
a. A stock buyer buys back and returns stock she borrowed from a broker. b. A stock buyer keeps her stock for no longer than one month. c. A stock buyer sends out a margin call. d. A stock buyer is short on the money he needs to pay back a margin purchase.

KEYS TO FINANCIAL SUCCESSS THEME 3 & 4 TEST
ALL TEST EXPECTATIONS APPLY

Keys to Financial Success Theme 4 – Spending and Credit

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Keys to Financial Success Theme 4 – Spending and Credit

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