Transcript Chapter 14. MAKING YOUR MONEY GROW THE MONEY MARKET Putting Your Money to Work Wisely in Savings Plans, Bonds… Tax Implications A.

Chapter 14. MAKING YOUR MONEY GROW THE MONEY MARKET
Putting Your Money to Work Wisely in Savings Plans, Bonds…
Tax Implications
A. What Is The Money Market?
1. How is Interest Figured? (See Personal Action
Worksheet, text page 380)
a. Compounding of interest
b. Crediting interest to your account
B. Types of Money Market Investments (and Evaluation
Criteria - Yield, Liquidity, Safety, Hedge Value,
Pledge Value, Tax Implications)
1. Passbook Savings accounts
2. Certificates of Deposit
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B. Types of Money Market Investments,
(continued)
3. What are bonds?
4. Corporate Bonds
a. How bond yields are figured: coupon yield,
current yield, yield to maturity
b. How bonds fluctuate in value - a most
important concept
c. Sinking funds
d. Call privileges
e. Corporate Bond ratings
f. Junk Bonds
g. Investment Criteria
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B. Types of Money Market Investments,
(continued)
5. U.S. Government Bonds
a. U.S. Treasury borrowings
b. Federal Agency borrowings
c. Savings bonds
d. Zero Coupon bonds
e. Inflation-proof bonds
f. Investment Criteria
6. Municipal Bonds
a. Tax exemption
b. Municipal bond ratings
c. Investment Criteria
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C. Mutual Funds (in the Money Market)
1. Features: Closed vs. open, load vs. no-load,
fees and charges, objectives, minimums required,
extra privileges, investment criteria
2. Corporate Bond funds
3. Tax-Exempt Municipal bond funds
4. U.S. Government bond funds
5. “Money Market” mutual funds
D. Other Money Market Opportunities
1. Banker’s Acceptances
2. Commercial Paper
3. Floating rate bonds
4. Convertible bonds
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TALKING POINTS…
Chapter Fourteen, Number One
Look in the latest Wall St. Journal for their section, “Credit Markets.”
It’s listed in the small index on the front of each day’s section called
MONEY AND INVESTING. This page contains a number of different
tables on money market interest rates. Under “Yield Comparisons”
you see what is called the “Treasury Yield Curve.” It shows interest
rates payable on U.S. Treasury issues of varying terms. Usually, but
not always, the shorter the term, the lower the rates. Why the
variances? Compare the other various issues in this table and the
“Money Rates” table. What factors cause some issues to pay higher
rates than others?
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TALKING POINTS…
Chapter Fourteen, Number Two
Lucky you! You have won $25,000 after taxes in a lottery, and you want to put it to
work risk free. You’ll want to cash in the whole nest-egg in 10 years to start your
own business - a very important goal to you. Evaluate these ways of building your
nest egg:
1. Put the whole $25,000 into 30 year U.S. Treasury Bonds. They are the
safest and pay the highest interest within the U.S. Government Bond
category.
2. Put it all into a high-rated corporate bond no-load mutual fund, which will
pay about two percentage points more interest than Uncle Sam’s bonds.
You’re willing to accept this risk for the higher return.
3. Put it all into municipal bonds with an average maturity of 10 years, so
every penny you earn will be free of federal income taxes.
4. Mix and match. How much would you put into each category? What else
might you consider?
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