Transcript UNIT 5: INVESTING - Monona Grove School District

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Exploring Business & Marketing
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.
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
*Playspent.org
*Watch the introduction and choose “Find a
Job”
*Good Luck!
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*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.
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*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)
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*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
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*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!
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*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?
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*When deciding how to invest your savings,
three main factors should be considered.
*Safety
*Rate of Return (Yield)
*Liquidity
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*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
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*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.
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*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?
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*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
*The Rule of 72
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Unit 5, Part 2: Stock as an Investment
with your Savings!
*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.
*
*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%!
*
*Ownership of Stocks
*Ownership in a corporation is shown in
printed form, called a stock certificate.
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*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
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*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 Sold)
*
(Amount Buy –
*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 Sold)
*
(Amount Buy –
*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.
*
*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.
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*Article:
Stock Ownership: A Delicious Topic!
*NYSE: New York Stock Exchange
*AMEX: American Stock Exchange
*Nasdaq: National Association of Securities
Dealers Automated Quotations
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*Buying Stock = “Trade” when the best bid
meets the lowest offer to sell.
*Stock prices are determined by supply and
demand.
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*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.
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*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.
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*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
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*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.
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*READ OUTLOUD in your Groups (rows).
Each
person reads a Paragraph.
*As a group, complete the questions on page
20
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*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?
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*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.
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*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
*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
*
*Investopedia Review
*Check Pg 22
*So how do we compare stocks to determine
better buy?
*Pepsi – PEP Coke*Which is Better Investment
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*Earnings per Share:
*= Net Income – Dividends / Average
Outstanding Shares
*EPS indicates the profitability of a
company.
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*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
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52 Week Range: The highest and lowest price
at which a stock was sold in the past year (52
weeks).
High
Coke
Pepsi
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Low
Current
*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
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http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4
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Unit 5: Investments
Investing in Bonds
*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
*
*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.
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*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.
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*Why would the government need to borrow
money?
*Defense
*Buildings
*Employees
*To fund any and all public services.
*
*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”
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*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.
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*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.
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*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.
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Unit 5: Bonds
Corporate Bonds
*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!
*
*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.
*
*Companies issue corporate bonds to
raise money for a variety of purposes.
*Building a new plant
*Purchasing Equipment
*Expanding Business
*
*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).
*
*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 semiannually 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.
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*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!
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*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.
*
*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 semiannually for 10 years.
*You will collect $80 a year, for 10 years.
*Par Value = $1,000
*Maturity Date = November 2023
*Yield = 8%
*
($800)
*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!
*
*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.
*
*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.
*
Rating
Exceptional security. (3%)
Excellent security.
Good security.
Adequate security.
Questionable security.
Poor security.
Very poor security.
Extremely poor security.
Lowest security. (10%)
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Interest Rate
*Aaa
*Aa
*A
*Baa
*Ba
*B
*Caa
*Ca
*C
*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!
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*Take a look at pg 46…we are going to
look at calculating interest payments
for different rated bonds.
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*Bond search
*ACCO….Who are they?
*Why risky? (10%)
*ATT (4.45%)
* Why not as risky?
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http://simulator.investopedia.com/Ranking/default.asp
x#axzz1eLlhDyq4
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Mutual Funds
*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
*
*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
*
*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
*
*
*Within Each Category of Fund, investment
companies offer many options of individual
Mutual Funds to purchase
*Each has their own Risk/potential profit
scale.
*
*Putnam Investments... Growth Fund options
*
* 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-thecounter 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???
*