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Thursday April 23, 2015
Review Credit Finish Bankruptcy
Articles Investing Notes
Agenda
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CIVICS AND ECONOMICS DAY 144
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Credit Review
What is Credit? What is a good credit score? How can you build credit? What is the affect of bad credit?
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Bankruptcy Articles
• In partners…On One Sheet of Paper. • Read the two articles
about Bankruptcy and answer the 13 questions on bankruptcy.
• Questions 1-5: “What is the difference between chapter 11, chapter 7 and chapter 13 bankruptcy?”
• Questions 6-14: “6 Bankrupt Celebrities Who Went From Rich to Broke”
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Investment Strategies
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What is Investing?
Investing- spending money to purchase something with the expectation that it will increase in value or return a profit over time.
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Investing
Savings is for more short-term goals
Investing is for long term goals.
Can sometimes be risky but (generally)Higher Risk, Higher Reward This is called
risk/reward trade-off
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When should you save and when should you invest? Savings:
Unexpected expenses Ex: Taking your
elementary school crush out on a date
Need a new radiator in your car
Investing: Long Term future plans Ex: I want to own
a house that me and Mrs. Taylor Swift Neanover can live in.
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Idea behind Investing
Time value of money. Money right now
has more value than the same amount received later.
This is because of interest you will get in the future.
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Lottery Problem
YOU WON THE LOTTERY!!!!Your Choice is $48.4 Million now or $87 million spread out over 30 years. Which is the better choice?
Lump Sum, because of the time value of money. If you invest your money now, your money will last you longer than those 30 years of 2.9 million a year.
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Basic Interest Computing
• Interest= Principal x Interest Rate x Time
• $4=$100 x. 04 x 1 Year
$100 x. 03 x. 2 Years = ??????
• Year 1: $103 (Gain of $3)
• Year 2: $106.09 (Gain of $3.09)
$100 x. 07 interest rate x 4 yearsYear
•Year 1: $107•Year 2: $114.49•Year 3: $ 122.50•Year 4: $131.08
•Your money keeps increasing because it is the interest added into the initial amount before it multiplies again.
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Compounding Interest
Amount= Principal (1 + Interest Rate) ^ Number of Years
A= P(1 +i) ^n
Example $100 (1+.07)^5= $140
^10= $196.72
^30=$761.23
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What is a Bond?
A fixed-interest obligation that either pays a yearly dividend or is paid off when it “matures” after a fixed amount of time.
Example: Buy a $100 dollar bond for $75 that matures in 20 years.
Considered a very safe investment
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Certificate of Deposit
A certificate issued by a bank to a person depositing money for a specified length of time.
Most will pay you the amount plus interest if you wait until maturity, but will charge you a penalty to remove it early.
Last up to 5 years.Considered a Safe Investment
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Mutual Fund and Index Funds
Mutual funds are corporations that buy hundreds of different stocks.
These have lower/moderate risk.
There are experts handling these funds
Index funds invest in things all across the board and general perform better.
Considered Moderate/Medium Risk
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What is Stock?
Most people make money by buying at a low value and selling high.
Each share entitles shareholder to a vote and dividends.
Dividends are portions of a corporation’s profits that it pays to its shareholders.
Considered very risky
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Investing Strategies
A Plan to take your investable money and make investment choices between bonds, CDs, real estate and stocks.
Take into consideration age, risk tolerance level, and short/long term objectives.
Ex: A Younger Person has longer to recover losses so can handle higher risk in the long run. They should buy more stocks than bonds.
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Risk of Investments
Low Moderate
High
Savings
CDs
Mutual
Index FundStocks