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Intro to Business, 7eIntro to Business, 7e
© 2009 South-Western, Cengage Learning SLIDE
Chapter 19
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CHAPTER 19
19-119-1 Saving and investment planning
19-219-2 Stock investments
19-319-3 Bonds and mutual funds
19-419-4 Real estate investments
19-519-5 Other investments
Savings and Investment Strategies
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© 2009 South-Western, Cengage Learning SLIDE
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Saving and Saving and Investment PlanningInvestment Planning
GoalsExplain the basics of saving and investing. Identify types of savings and investments.Discuss factors to consider when evaluating
savings and investment alternatives.
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Key TermsKey Terms
savinginvestingyieldliquidity
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SAVING AND SAVING AND INVESTMENT BASICSINVESTMENT BASICS
Savings and investment activitiesDetermine investment goalsThe growth of savings
InterestCompound interest
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Quarterly Compound InterestQuarterly Compound Interest
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How does saving influence economic activity?
Answer Saving benefits the economy by making more
money available for borrowing by individuals, businesses, and governments.
When this money is spent, demand for goods and services increases, resulting in more jobs and more spending by workers.
Checkpoint >>Checkpoint >>
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SAVING AND SAVING AND INVESTMENT CHOICESINVESTMENT CHOICES
Savings plans Savings account Certificate of deposit Money market account
Securities Stock investments Bond investments Mutual funds
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SAVING AND SAVING AND INVESTMENT CHOICESINVESTMENT CHOICES
Alternative investmentsReal estateCommoditiesCollectibles
(continued)
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What are the nine main categories of saving and investment alternatives?
AnswerSavings accountsCertificates of depositMoney market accountsStock investmentsBond investments
Mutual fundsReal estateCommoditiesCollectibles
Checkpoint >>Checkpoint >>
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EVALUATING SAVINGS EVALUATING SAVINGS AND INVESTMENTSAND INVESTMENTS
Safety and riskPotential returnLiquidityTaxes
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$100 Invested for 20 Years$100 Invested for 20 Yearsat Different Yields with Annual Compoundingat Different Yields with Annual Compounding
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InvestmentInvestmentPyramidPyramid
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What are four factors to consider when selecting an investment?
AnswerSafetyReturnLiquidityTaxes
Checkpoint >>Checkpoint >>
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Stock InvestmentsStock Investments
GoalsCompare the two major types of stock.Describe the activities involved with buying or
selling stock. Identify factors that affect the value of a stock.
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Key TermsKey Terms
preferred stockcommon stockstockbrokerstock exchangemarket value
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TYPES OF STOCKTYPES OF STOCK
Preferred stockCommon stock
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How does preferred stock differ from common stock?
Answer Preferred stock has priority over common stock in the
payment of dividends. Investing in preferred stock is less risky than common
stock, but preferred stockholders generally have no voting rights within the corporation.
Common stock represents general ownership in a corporation and a right to share in its profits.
Common stockholders are entitled to one vote per share. Although preferred stockholders are paid first, their
dividends usually are limited to a set rate.
Checkpoint >>Checkpoint >>
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STOCK TRANSACTIONSSTOCK TRANSACTIONS
Using a stockbrokerOnline investingStock exchangesChanging stock values
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Example of Stock Market QuotationsExample of Stock Market Quotations
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What is the purpose of a stock exchange?
AnswerThe purpose of a stock exchange is to
accommodate the buying and selling of securities.
Checkpoint >>Checkpoint >>
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STOCK SELECTIONSTOCK SELECTION
Stock information sourcesEconomic factors
Inflation Interest ratesConsumer spendingEmployment
Company factors
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PROCESS FOR DECIDING PROCESS FOR DECIDING STOCK PURCHASESSTOCK PURCHASES
1. Observe and analyze economic and social trends.
2. Determine industries that will be affected.
3. Identify companies in those industries.
4. Decide whether to buy, sell, or hold the stock of those companies.
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How do various economic factors affect stock prices?
Answer Inflation affects stock prices by causing lower spending by
consumers, reducing company profits out of which dividends are paid.
Falling or rising interest rates can also increase or decrease company profits as the cost of money changes.
The employment rate also affects stock prices; when more people are employed, they spend more money on a company’s products and stock prices rise.
Checkpoint >>Checkpoint >>
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Bonds and Bonds and Mutual FundsMutual Funds
GoalsList types of government bonds.Describe features of corporate bonds.Describe various types of mutual funds.
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Key TermsKey Terms
municipal bondcorporate bondmutual fund
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GOVERNMENT BONDSGOVERNMENT BONDS
Municipal bondsU.S. savings bondsOther federal securities
Federal notes (T-notes)Treasury bills (T-bills)Treasury bonds (T-bonds)
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List the types of bonds issued by the federal government of the United States.
AnswerThe types of U.S. savings bonds issued by
the federal government are Series EE bonds, Series HH bonds, and I bonds.
The federal government also issues Treasury bills and Treasury notes.
Checkpoint >>Checkpoint >>
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CORPORATE BONDSCORPORATE BONDS
Bond componentsBond values
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What affects the value of a bond?
AnswerThe value of a bond is affected by changing
interest rates. If the bond’s stated rate is lower than interest
rates on similar bonds, investors will want to buy the bond for less than its face value.
If the bond’s stated interest rate is higher than interest rates on similar bonds, the seller of the bond will want to receive more than its face value.
Checkpoint >>Checkpoint >>
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MUTUAL FUNDSMUTUAL FUNDS
A mutual fund is an investment fund set up and managed by companies that receive money from many investors.
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TYPES OF TYPES OF MUTUAL FUNDSMUTUAL FUNDS
Aggressive-growth stock fundsIncome fundsInternational fundsSector fundsBond fundsBalanced funds
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MUTUAL FUND VALUESMUTUAL FUND VALUES
Shares of the mutual fundValue of each shareNet asset value (NAV)Operating expensesEarnings
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What are the main types of mutual funds?
AnswerThe main types of mutual funds are aggressive-
growth stock funds, income funds, international funds, sector funds, bond funds, and balanced funds.
Checkpoint >>Checkpoint >>
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Real Estate Real Estate InvestmentsInvestments
GoalsDescribe home buying activities.Explain the benefits of home ownership.Discuss the costs of home ownership.
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Key TermsKey Terms
real estatemortgageequityassessed value
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SELECTING HOUSINGSELECTING HOUSING
Renting your residenceOwning a mobile homeBuying a homeServices of real estate agentsOther real estate professionalsBuying a condominium
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What are four available housing alternatives?
AnswerRentingOwning a mobile
homeBuying a traditional
homeBuying a condominium
Checkpoint >>Checkpoint >>
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BENEFITS OF BENEFITS OF HOME OWNERSHIPHOME OWNERSHIP
Tax benefitsIncreased equityPride of ownership
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What are the main benefits of home ownership?
AnswerTax benefits Increased
equityPride of
ownership
Checkpoint >>Checkpoint >>
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COSTS OF COSTS OF HOME OWNERSHIPHOME OWNERSHIP
Property taxesInterest paymentsProperty insuranceMaintenance
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What are common costs of home ownership?
AnswerCommon costs of home ownership are property
taxes, interest payments, property insurance, and maintenance.
Checkpoint >>Checkpoint >>
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Other InvestmentsOther Investments
GoalsDiscuss types of commodity investments.Explain the use of collectibles as an
investment.
19-519-5
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Key TermsKey Terms
commoditiesfutures contractcollectibles
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COMMODITIES AND COMMODITIES AND FUTURESFUTURES
Commodity exchangesAgricultural commoditiesGold, silver, and precious metalsCurrency and financial instruments
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What types of commodities are commonly used with futures contracts?
AnswerTypes of commodities commonly used with
futures contracts are agricultural commodities, such as grain and livestock, and precious metals.
Checkpoint >>Checkpoint >>
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COLLECTIBLESCOLLECTIBLES
Types of collectiblesCollectible values
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What are common types of collectibles?
AnswerCommon types of collectibles are stamps, coins,
sport trading cards, and antiques, as well as unusual items purchased as investments.
Checkpoint >>Checkpoint >>