lecture 9 saving investment and the financial system
TRANSCRIPT
Macroeconomics
Lecture 9
Saving, Investment, and the Financial System
Questions
In Class Quiz 3 Name ___________________
1. Name two ways to raise financial capital for your business.
2. What did Hans Rosling’s grandmother consider the most important invention?
3. How many data points were plotted in the 200 countries in 200 years video?
4. What is more generally more risky, stocks or bonds?
5. What has a higher potential profit, stocks or bonds?
Borrow or Sell Shares - Bonds or Stock - Debt or Equity
Washing Machine Gave freedom to develop human capital
120,000
Stocks
Stocks
gapminder.orgHans Rosling
Stock Markets
New York Stock Exchange
National Association of Securities Dealers
Automated Quotations
May 17, 1792
2,400 Listed Companies
New York Stock Exchange
February 4, 1971
3,060 Listed Companies
National Association of Securities Dealers
Automated Quotations
Stock Valuation
Share PriceDividend
Price-Earnings Ratio
Share Price
Every time a share sells it sets the current price
Share prices can go up and down with every
sale
Dividend
Company Earnings or Profits
Declare dividendKeep - Retained Earnings
Dividend
Earnings: 500Dividend: 300Retained Earnings: ?
Price - Earnings Ratio
P/E Ratio
Current Share Pricedivided by
Earnings last year
P/E Ratio
Current Share Price: 75
Earnings last year: 5
P/E Ratio: ?
P/E RatioPrice
Last SaleEarnings
Last 12 monthsP/E
Ratio
Equation Earnings x P/E Ratio Price ÷ P/E Ratio Price ÷ Earnings
Apple $117 $8.62
Google $786 30.02
Facebook $2.12 60.87
13.57
$26.19
$129
Stock Bond
Stock
Price $111.95
Market Cap $94.13 B
P/E Ratio 21.33
Earnings 4.68%
Retained Earnings 1.32%
Dividend Yield 3.36%
Bond
More Time = More Risk
More Time = More Risk
Bond2018
Yield to Maturity
1.43%
U.S Treasury 2yr0.86%
Spread0.57%
spread = subject - treasury0.57% = 1.43% - 0.86%
U.S. Treasury McDonalds BondMcDonalds Stock
0.86%1.43%3.36%
More Risk = Higher Rate
Yield
Financial Intermediaries
Banks
Mutual Funds
Banks
SaversBorrowersInvestors
Bank Pays5%
Bank Charges7%
Make moneyon spread
7% - 5% = 2%
We are rich today because
people yesterday were willing to save and not consume
I only have $100
can I still invest in the stock market?
Mutual Funds
Allows small investors to pool and diversify
their savings
$115 $770 $115
smallsavers
$100
Mutual Fund - $1,000
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100
smallsavers
$100