lecture 9 saving investment and the financial system

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Macroeconomics Lecture 9 Saving, Investment, and the Financial System

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Page 1: Lecture 9 saving investment and the financial system

Macroeconomics

Lecture 9

Saving, Investment, and the Financial System

Page 2: Lecture 9 saving investment and the financial system

Questions

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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

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gapminder.orgHans Rosling

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Stock Markets

New York Stock Exchange

National Association of Securities Dealers

Automated Quotations

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May 17, 1792

2,400 Listed Companies

New York Stock Exchange

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February 4, 1971

3,060 Listed Companies

National Association of Securities Dealers

Automated Quotations

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Stock Valuation

Share PriceDividend

Price-Earnings Ratio

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Share Price

Every time a share sells it sets the current price

Share prices can go up and down with every

sale

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Dividend

Company Earnings or Profits

Declare dividendKeep - Retained Earnings

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Dividend

Earnings: 500Dividend: 300Retained Earnings: ?

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Price - Earnings Ratio

P/E Ratio

Current Share Pricedivided by

Earnings last year

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P/E Ratio

Current Share Price: 75

Earnings last year: 5

P/E Ratio: ?

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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

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Stock Bond

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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%

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Bond

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More Time = More Risk

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More Time = More Risk

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Bond2018

Yield to Maturity

1.43%

U.S Treasury 2yr0.86%

Spread0.57%

spread = subject - treasury0.57% = 1.43% - 0.86%

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U.S. Treasury McDonalds BondMcDonalds Stock

0.86%1.43%3.36%

More Risk = Higher Rate

Yield

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Financial Intermediaries

Banks

Mutual Funds

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Banks

SaversBorrowersInvestors

Bank Pays5%

Bank Charges7%

Make moneyon spread

7% - 5% = 2%

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We are rich today because

people yesterday were willing to save and not consume

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I only have $100

can I still invest in the stock market?

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Mutual Funds

Allows small investors to pool and diversify

their savings

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$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