1. Understand the role of finance in business.

2. Understand saving and investing options for clients.

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

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

6.  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

7.  What is saving?  Putting away money for future use  Where?  What is investing?  Using savings to earn more money for future financial security  Where?

8.  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.  Main goals of savers and investors include making available immediate income and long-term growth

10.  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.  Impact of compound frequency on savings growth rate: the more times the interest is compounded the more growth in savings

12.  I = P*R*T P = Principal (initial amount you borrow or deposit) R= Rate T = Time I = Interest Rate

13.  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. Simple interest $1,000 at 10% Year 1: $1,000 *.10 = $100 $1,000 + $100 = $1,100 Year 2: $1,000 *.10 = $100 $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?

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

17.  Simple Interest I = P*R*T 1,000*.10*3 = 300 1,000 + 300 = $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.  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

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

21.  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

23.  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

26.  Stocks  Bonds  Mutual Funds and Exchange-traded Funds  Real Estate  Commodities  Collectibles

27.  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?

28. PREFERRED STOCK  Investment risk and pays dividends  No voting power  Pays dividend before common stock  Less risky than common COMMON STOCK  Investment risk and pays dividends  Invited to annual corporate meetings and one vote per share owned

29.  What are stockbrokers?  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.  Located in New York City on Wall Street in lower Manhattan  www.nyse.com www.nyse.com  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.  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.  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.  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.  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.  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.  McDonald’s  Merck & Co.  Microsoft  Pfizer  Proctor & Gamble  Travelers Co.  United Technologies  Verizon  Wal-Mart Stores  Walt Disney Co.

37. ABCDEFGHI 52 WeekSales HighLowStockDivYldPEVol 100s HighLowLastChg 12 1/8 8AAR.446.215 6 6 3/4 6 5/8 6 1/2-1/8 49 1/231 1/4ACF1.767.4 747736 1/437 5/8 37+3/4 26 1/216AMF1.366.7 713317 1/2 -3/8 6 1/8 3 1/8ARA 2 7 8 1033 7/8 33

38.  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.  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. 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

41.  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.  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.  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.  Complete “Comparing Stocks Activity” using: www.freestockcharts.com www.freestockcharts.com

45.  What is a bond?  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

46.  Lenders versus owners as it relates to investing in a company’s stocks and bonds  Bonds = lenderStocks=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 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 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 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.  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.  Use the following website to research the values of current bond offerings.  www.investingbonds.com/marketataglance.asp?c atid-32 www.investingbonds.com/marketataglance.asp?c atid-32

52.  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 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

54.  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. 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.  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

57.  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.  Safety and risk  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.  Liquidity  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.  Complete the “Right Type of Mutual Fund Activity” provided