Exploring Business & Marketing*UNIT 5:

SAVING & INVESTING

CCRS – Math

(24-27)Solve multistep arithmetic problems that involve planning or converting units of measure

Manipulate data from tables and graphs

Compute straightforward probabilities for common situations

(28-32) Interpret and use information from figures, tables, and graphs

Unit Objectives/Learning Goals:Managing Finances and Budgeting: • Develop and evaluate a spending/savings plan.

Saving and Investing: • Evaluate savings and investment options to

meet short- and long-term goals.

*Savings/Investing Activity

*Playspent.org

*Watch the introduction and choose “Find a Job”

*Good Luck!

*Why Have a Savings Plan?

*Savings Plan: putting money aside in a systematic way to help reach a financial goal.

*Savings plans are used to buy the goods and services we need and want.

*Also used for future expenses and emergencies.

*Using Savings for Investing

*Investing: using your savings to earn more money.

*In order to invest your money, you must have money set aside in order to do so.

*CAUTION: Investments are not guaranteed to make $$$$$ (NOT FDIC INSURED)

*Making Savings Work for You!

*Interest: money you receive for letting others use your money.

*Savings put to work to earn interest is a form of investment.

*See The Cost of Waiting Handout

*Earning Interest

*Simple Interest: computed only on the amount saved.

*Example: David saves $50 a month. In a year his savings will be $600. He earns 10% annual interest. *After year 1, he will have made $60. - - for doing nothing!

*Earning Interest

*Compound Interest: computed on the amount saved plus the interest previously entered.

*Interest can be compounded daily, monthly, quarterly, semiannually, or annually Which

Grows faster the savings rate or the investing rate?

*Selecting an Investment

*When deciding how to invest your savings, three main factors should be considered.

*Safety

*Rate of Return (Yield)

*Liquidity

*Selecting a Savings Plan

*Safety: assurance that the money you have invested will be returned to you.

*How safe are the following?*Savings Account at Local Bank

*Purchasing a House

*Investing in a Stock

*Selecting a Savings Plan

*Rate of Return (Yield): the percentage of interest that will be added to your savings over a period of time.

*How much will you “get back” in return for the invested amount of money.

*Usually higher rates of return and greater risks of loss go together.

*Selecting a Savings Plan

*Liquidity: the ease with which an investment can be changed into cash without losing any of its value.

*When an investment can be turned into money quickly, it is said to be a liquid investment.*Compare $5,000 in a savings account in a bank to a piece of land that you bought for $5,000.*Which is more of a liquid investment?

*The Rule of 72

*The Rule of 72 gives you the answer to the question of how long it will take to double your money at various rates of return.Interest Rate Years to

Double

1% 72

2% 36

3% 24

4% 18

5% 14.5

6% 12

7% 10.3

8% 9

9% 8

10% 7.2

11% 6.5

12% 6

15% 4.8

Unit 5, Part 2: Stock as an Investment with your Savings!

*EXPLORING BUSINESS

*Review: Investments

*Pull Out Life Maps… What happens as your plans get further away…

*Your need for savings will increase as your goals become more expensive.

*Investing at a young age can lead to better security and economic independence later in life.

*Investing in Stocks

*Why Invest in Stocks?

*Become part owner in a corporation!

*Earn a high rate of return.*Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7% *Over past 20 years, American Stocks have had an annual return of 13%!

*Investing in Stocks

*Ownership of Stocks

*Ownership in a corporation is shown in printed form, called a stock certificate.

*Investing in Stocks

*Market Value: the price at which a share of stock can be bought and sold for in the market.

*What affects price of stock?*How is the business doing? Financial reports, business releases.

*State of Economy. (Which phase of business cycle?)

*Political Developments

*How Do I Make $$$ In The Stock Market?

*Buy Pepsi today at $85.80 Buy 100 shares.

$8,580.

*Imagine 2 years from now…(November 2015)

* Pepsi’s stock price on November 2015 is now $105.80!!

*You sell your 100 shares now valued at $10,580!*You have essentially earned $2,000! (Amount Buy – Amount Sold)

*How Do I Lose $$$ In The Stock Market?

*Buy Pepsi today at $85.80. Buy 100 shares.

$8,580. *Imagine 2 years from now…(November 2015)

* Pepsi’s stock price on November 2015 is now $61.80!!

*You sell your 100 shares now valued at $6,180!

*You have essentially lost $2,400! (Amount Buy – Amount Sold)

*Selecting Stock Investments

*There is no secret or special formula.*It requires: hard work and research.

*Four-Step Process for Deciding on Stocks*Observe and Analyze Economic and Social Trends

*Determine Industries that will be affected*Identify Companies in those industries*Decide whether to buy, sell or hold the stock of those companies.

*Review: Investments

*Your need for savings will increase as your goals become more expensive.

*Investing at a young age can lead to better security and economic independence later in life.

*Article:

Stock Ownership: A Delicious Topic!

*Where are Stocks Sold?

*NYSE: New York Stock Exchange

*AMEX: American Stock Exchange

*Nasdaq: National Association of Securities Dealers Automated Quotations

*NYSE, AMEX, Nasdaq

*Buying Stock = “Trade” when the best bid meets the lowest offer to sell.

*Stock prices are determined by supply and demand.

*Stock Exchanges- STOCK Brokers

*Compare a Stock Exchange to Ebay…

*Ebay and Stock Exchanges = Auction sites

*Seller puts an item up for sale, and several people compete to buy the same item.

*“Going Public”

*Go Public: the process a company takes to offer shares of stock to the public for the first time.

*Initial Public Offering (IPO): the first sale of a corporation’s public shares.

*Why “Go Public”

*Businesses offer stock for many reasons, that include:*Raise Capital*Expand Operations/Create Jobs*Fund Research and Development of Products

*Pay Off Debt*Provide Employees with Benefits*Develop Marketing Strategies*Generate Additional Revenue

*Selecting Stocks

*In selecting a specific stock to buy, you should learn something about the business record of the corporation.

*There is no secret or special formula.

*It requires: hard work and research.

*The opportunity to earn a high rate of return attracts people to invest in stocks.

*STOCK OWNERSHIP- TOAD!

*READ OUTLOUD in your Groups (rows). Each person reads a Paragraph.

*As a group, complete the questions on page 20

*Selecting Stocks

*When considering stocks, ask the following questions:

*Has the company been profitable over a period of years?

*Does the company have growth potential in coming years?

*How does the company compare with others in its industry?

*Identifying Important Figures in Selecting

Stock

*Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise.

*When evaluating stocks, revenue growth serves as an indication of a company's health.

READY TO INVEST?

*YOUR TURN, SELECTING STOCKS

*Pg 22 in PACKET finance.yahoo.com

*Pick 2 competing companies from 3 industries…

*Coke, Pepsi - Beverages

*Microsoft, apple – Computers

*Mcdonalds vs Burger King – Fast Food

*Your turn, INVESTOPEDIA

*Time to INVEST your money. You choose 3 of your six companies to invest in…plus one more for fun..

*INVESTOPEDIA.com

*Follow instructions on page 24

*Review Investments

*Investopedia Review

*Check Pg 22

*So how do we compare stocks to determine better buy?

*Pepsi – PEP Coke-

*Which is Better Investment

*Identifying Important Figures in Selecting

Stock

*Earnings per Share:

*= Net Income – Dividends / Average Outstanding Shares

*EPS indicates the profitability of a company.

*Identifying Important Figures in Selecting

Stock

*P/E Ratio: Price (market value) per Share/Earnings per Share

*it shows how much investors are willing to pay per dollar of earnings. It shows value.

*In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry

*Identifying Important Figures in Selecting

Stock

52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks).

High Low CurrentCokePepsi

*Investing in Stocks

*What are the three ways to determine if now is the time to purchase a stock

*P/E Ratio

*52-Week High Low

*EPS

*Need Help..like this stuff. Watch Jim Cramer. Playbook

Unit 5: Investments

Investing in Bonds

*EXPLORING BUSINESS & MARKETING

http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4

*What is a Bond?

*BOND: a certificate promising to pay a specific amount of money at a stated interest rate on a specific maturity (due) date.

*A bond is basically a fancy IOU.

*Bonds Explained

*Investing in Bonds

*Organizations such as the federal government, corporations, churches, and schools issue bonds to raise money.

*When these organizations issue bonds, they are borrowing money from the people who purchase the bonds.

*Types of Bonds

*Government Bond: bonds issued by government to fund public services.*Considered very safe. The risk of the government not returning your money is very low. Rate of return is lower.

*Corporate Bond: a bond sold by a corporation.*Depends on company, but the risk is higher than government bonds, therefore having an overall higher rate of return.

*Government Bonds

*Why would the government need to borrow money?

*Defense

*Buildings

*Employees*To fund any and all public services.

*Different Types of Government Bonds

*All government bonds use the money to fund public services.

*Different types of bonds are for different uses

*Savings Bonds: issued by federal government for national services.

*Municipal Bonds: issued by state and local governments for state and local services. “Muni’s”

*Government Bonds

*Municipal Bonds

*Usually sold in amounts of $1,000.

*Considered very safe investments.

*Money borrowed is for local or state projects.*Road Construction, Schools, Hospitals, etc.

*Government Bonds

*United States Savings Bonds

*Series EE Bonds ($50 - $10,000): bought at half its face value.*A $50 bond costs $25. The bond will earn interest for a specific period of time.

*Savings Bonds: Example

*Series EE Savings Bonds

*Interest Earned: difference between the purchase price and redemption value. *Interest earned is determined by the length of time the bond is held.

*Savings bonds are purchased at banks, through payroll, and over the Internet

*You can “cash” your savings bonds at anytime, but the longer you hold the bond, the more interest you will make.

Unit 5: Bonds

Corporate Bonds

*EXPLORING BUSINESS

*Bonds: Review

*Everyone needs to borrow money

*You may need to borrow money for lunch or a soda.

*Businesses borrow money as well, but unlike you and me, it is awfully difficult to get borrowed money just with the promise to repay it the next day!

*Corporate Bonds

*Businesses have to agree not only to pay back the amount they borrowed, but also to pay a little extra in the form of a fee (interest) for borrowing the money.

*Corporate Bonds: a loan sold to the public.*Bonds are sold just like stock – through public securities markets.

*Corporate Bonds

*Companies issue corporate bonds to raise money for a variety of purposes.

*Building a new plant

*Purchasing Equipment

*Expanding Business

*Bonds: Review

*When you buy a corporate bond, you lend money to the company that issued the bond.

*In exchange, the company promises to return your money (principal)on a specified maturity date.

*Until that date, the company usually pays you a stated rate of interest, generally semiannually (twice a year).

*Bonds: Review

*For example:

*Let’s say you purchased a Corporate Bond from General Motors. *The bond is a 10 Year, $1,000 bond.

*The annual interest rate is 8%, paid semi-annually for 10 years. *You will collect $80 a year, for 10 years. ($800)

*After 10 Years, General Motors will return your $1,000.*You will have started with $1,000 and ended with

$1,800.

*Corporate Bonds

*Corporate bonds tend to carry higher interest rates than government bonds because there is a risk that the company could go bankrupt.

*Unlike the government, which can just print more money if it really needs it!

*Bonds: Terminology

*Par Value: the amount of money loaned by the investor. Also known as principal amount.

*Maturity Date: the date when the bond issuer has to return the principal amount to the lender (investor).

*Bond Yield: the return an investor would earn if a bond was purchased and held to maturity.

*Corporate Bonds

*Let’s return to our example from before:*You purchased a Corporate Bond from General Motors.

*The bond is a 10 Year, $1,000 bond.*The annual interest rate is 8%, paid semi-annually for 10 years. *You will collect $80 a year, for 10 years. ($800)

*Par Value = $1,000*Maturity Date = November 2023*Yield = 8%

*Corporate Bonds

*Sometimes companies have a hard time selling their bonds.*What they can do is lower the Par Value or price of the bond.

*In our example from before, if General Motors was having a difficult time selling their bonds, they could sell a $1,000 bond for $950. The bond is still worth $1,000 – but you can buy at a discount!

*How Do I Know If I Can Trust a Company?

*Remember, with Corporate Bonds there is always a chance your money may not be repaid….So, how do you know if you can trust a company to repay you?

*Lucky for you, there are Bond Ratings.

*Rating Bonds

*Bond Ratings: developed to indicate how financially stable the issuer of the bonds is.

*Basically, the higher the rating, the higher quality of the bond, and the more likely you will get your money back on the maturity date.

*Moody’s Bond Ratings

*Aaa Exceptional security. (3%)*Aa Excellent security.*A Good security.*Baa Adequate security.*Ba Questionable security.*B Poor security.*Caa Very poor security.*Ca Extremely poor security.*C Lowest security. (10%)

Ratin

g

Inte

rest

Rate

*Risk and Return

*Corporate bonds that carry a higher rating, will have a lower interest rate.

*You will likely receive all interest payments and principal.

*If a bond is rated Ba, B, Caa, Ca, or C it is considered a “Junk Bond”*Junk Bond: called junk bonds, because the credit quality of the business is not high.

*Junk Bonds in general, carry very high interest rates!

*Corporate Bond Worksheet

*Take a look at pg 46…we are going to look at calculating interest payments for different rated bonds.

*Examples of Bond Prices

*Bond search

*ACCO….Who are they?

*Why risky? (10%)

*ATT (4.45%)

* Why not as risky?

Mutual Funds

*Exploring Business

http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4

*Mutual Fund

*Mutual Funds:Are a collection of stock funds set up and managed by investment companies

*Multiple investors deposit money into account

*Account Managers then purchase a wide variety of stocks and bonds.

Stocks

*Ownership

*Mutual Fund investors own shares of the FUND itself, not individual stocks

*Part of the dividend received from the fund, is used to pay for operating expenses

*Types of Funds

*Growth - Designed to build wealth over time

*Blend Funds-Combination of Growth and Value*Value Funds-prices are low relative to the company's earnings, dividends

*Income-invest in interest-paying bonds and, to a limited extent, dividend-paying stocks

*Types of Funds

*Types of Funds

*Within Each Category of Fund, investment companies offer many options of individual Mutual Funds to purchase

*Each has their own Risk/potential profit scale.

*Types of Funds

*Putnam Investments... Growth Fund options

*Sample Funds

*Health Sciences Trust -The fund seeks to capitalize on the strength and diversity of companies within the health-care sector. The fund seeks companies that offer strong long-term growth prospects, regardless of their size. Holdings encompass an array of industries, including pharmaceuticals, health-care services, and biotechnology.

*OTC & Emerging Growth Fund -The fund targets small and midsize companies believed to have exceptionally strong growth potential. Its portfolio may include stocks that are traded in the over-the-counter market (OTC) and stocks of emerging-growth companies listed on securities exchanges. The fund's focus on rapidly growing small and midsize companies makes it Putnam's most aggressive growth product.

*Mutual Funds and ETFS???