answer the following - mr. john middleton · updated 05_21 investment notes.notebook 6 may 26, 2015...

Updated 05_21 Investment Notes.notebook

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1) What did you have for breakfast?

2) Estimate the basic cost of what you ate for breakfast?

3) During breakfast, how did you participate in voluntary exchange?

Answer the following:


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Big Idea: Relationships change over time

Established Goals: Explain how the financial system helps transfer funds between savers and investors through 4 different types of asset markets.

Essential Question: What issues should be considered when making investment decisions?


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What is voluntary exchange?

Voluntary exchange is a trade in which both parties involved believe that what they are getting is worth more than what they are giving up.


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The Financial System:

The financial system consists of institutions, such as banks, insurance markets, bond markets, and stock markets, that help transfer funds between savers and investors.


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Savings VS. Investment What should you do with your money?


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BorrowersSavers

Financial Intermediaries

Financial Intermediaries

Assets

Interest and Dividends

SavingsLoans

Commercial Banks Savings and LoansCredit UnionsFinance CompaniesInsurance CompaniesMutual FundsPension Funds


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Asset Markets

So you want to make money with our Financial System? You would use 1 of 4 types of ...


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Asset Markets:A share in something

The type of market is determined by 2 things.

1) Time or how long an asset is held in order to make money.

2) Resalability or whether the financial asset can be resold.


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A. The Capital Market:

Based on Time.This market is where longterm financial assets are bought and sold.

Factor:What is it?

What's sold here?Stocks, bonds, mortgages, longterm CDs.Why the Name?

Because the money raised here is invested in projects that require large amounts of capital.


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B.The Money Market:

Based on Time.This market is where shortterm financial assets are bought and sold.

Factor:What is it?

What's sold here?Treasury Bills and shortterm CDs.

Why the Name?Because money markets are where loans are made for less than a year. When someone needs fast cash. Think loan shops.


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C.The Primary Market:

Based on resalability.This market is for buying financial assetsdirectly from the issuer.

Factor:What is it?

What's sold here?Savings State bonds and small CDs.

Why the Name?Because the money raised canonly be redeemed by the originalbuyer.


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D.The Secondary Market:

Based on resalability.This market is where financial assets are resold.

Factor:What is it?

What's sold here?Stocks and Bonds.

Why the Name?Because the money raised by investors can be turned into cash through reselling.


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May 26, 2015

Connection To Math: Calculating Interest

Principal x Interest Rate = Interest Earned

2,000 .06 120

Example: 6% annual rate

Principial Interest Rate Interest Earned

x =New Balance: 2,120


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Year 2:

(Principal + Year 1 Interest) x Interest Rate = Interest Earned

(2,000 + 120) x .06 = 127.20

New Balance:2,247.20


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Calculate the follow interest paid on 1,000 at 5%.

1) Year 11,000 x .05 =

2) Year 2

3) Year 3


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May 26, 2015

Calculate the follow interest paid on 1,000 at 5%.

1) Year 11,000 x .05 =

2) Year 2

3) Year 3

50.00

(1,000 + 50.00) x .05 = 52.50

(1,050 + 52.50) x .05 = 55.13

1,102.50 x .05 = 1,157.63


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DEFINITION of 'Bull Market'

A financial market of a group of securies in which prices are rising or are expected to rise. The term "bull market" is most oen used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodies.

Investment Background 'Bull Market'

Bull markets are characterized by opmism, investor confidence and expectaons that strong results will connue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculaon may somemes play a large role in the markets.

Identifying Investment Trends and goals: Bull vs. Bear Markets


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Identifying Investment Trends and goals: Bull vs. Bear Markets

DEFINITION OF 'BEAR MARKET'

A market condion in which the prices of securies are falling, and widespread pessimism causes the negave senment to be self‐sustaining. As investors ancipate losses in a bear market and selling connues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in mulple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two‐month period, is considered an entry into a bear market.

Investment Background 'BEAR MARKET'

A bear market should not be confused with a correcon, which is a short‐term trend that has a duraon of less than two months. While correcons are oen a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as ming the boom is very difficult to do. Fighng back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.


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Risk vs. Return

Identifying Investment Trends and goals: Risk vs. Return


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Sectors

DEFINITION of 'Sector'

1. An area of the economy in which businesses share the same or a related product or service. Economies are comprised of four sectors. The primary sector involves the extracon and harvesng of natural products from the earth (e.g., agriculture, mining and forestry). The secondary sector consists of processing, manufacturing and construcon. The terary sector provides services, such as retail sales, entertainment and financial services. The quaternary sector is made up of intellectual pursuits, like educaon.

2. An industry or market sharing common characteriscs. Investors use sectors to place stocks and other investments into categories like technology, health care, energy, ulies and telecommunicaons. Each sector has unique characteriscs and a different risk profile.

Identifying Investment Trends and goals:


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Investment:Concept: Stocks vs. Bonds

(Share in ownershipof company) vs.

(Share in debt of company)

Stock Part owner of the company

Bond Leader to the company

*Both are paid to own shares in the company via dividends or interest on each share

* Stocks are sold via secondary markets (high resale valve) and Bonds are sold via primary markets (no resale valve).


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Investment:Concept: Stocks vs. Bonds

Debt

Owners' Equity

20m15m

5m

Company's Assets

Liabilities

A = L + E

(Share in ownershipof company)

vs. (Share in debt of company)

Think house values....

Value of Home = Debt + Equity in home

Worth


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Investment:

Debt

Owners' Equity

__m__m

__m

Company's Assets

Liabilities

A = L + E

Research your focus company's assets and liabilities

Worth


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Investment IndexA statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.

The Dow (DJIA)Represents stocks from 30 of the largest US companies. The Dow's value is computed by adding up the pershare price of each of the companies listed within the index. With that, it represents around 25% of the total value of the U.S. stock market.

The S&P 500Made up of 500 of the most widely traded stocks in the US. The S&P is a market weightedindex, meaning that it is a representation of market capitalization not price value. The value of the index changes with the value of the companies listed. It represents around 70% of the total value of the U.S. stock market.

The Nasdaq Composite IndexThe Nasdaq represents technology stocks (to a point) and it includes companies that are not based within the U.S. This index does also includes smaller startup companies and its movement generally indicates the performance of the technology industry as a whole.


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May 26, 2015

Big Idea: Relationships change over time

Established Goals: Explain how the financial system helps transfer funds between savers and investors through 4 different types of asset markets.

Essential Question: What issues should be considered when making investment decisions?

answer the following - mr. john middleton · updated 05_21 investment notes.notebook 6 may 26, 2015...

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