Copyright © 2008 Pearson Education, Inc. Slide 4-1 Unit 4C Savings Plans and Investments.

Copyright © 2008 Pearson Education, Inc. Slide 4-1

Unit 4C

Savings Plans and Investments


Definitions

An annuity is any series of equal, regular payments.

An ordinary annuity is a savings plan in which payments are made at the end of each month.

An annuity due is a plan in which payments are made at the beginning of each period.

The future value is the accumulated amount at some future date.

The present value of a savings plan is a lump sum deposit that would give the same end result as regular payments into the plan.

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Savings Plan Formula(Regular Payments)

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Y = number of years

A = accumulated balance after Y years

PMT = regular payment (deposit) amount

APR = annual percentage rate (as a decimal)

n = number of payment periods per year

Examples:

#46 and #47 in the text

Savings Plan Group Assignment



Types of Investments

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Stock (equity) – a share of ownership in a company.

Invest some principal amount to purchase the stock. The only way to get money out is to sell the stock. Because stock prices change with time, the sale may give either a gain or a loss


Types of Investments continued

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Bond (debt) – a promise of future cash.

Buy a bond by paying some principal amount to the issuing government or corporation. The issuer pays simple interest and promises to pay back the principal at some later date.

Cash investments include bank accounts, certificates of deposit (CD), and U.S. Treasury bills. Cash investments generally earn interest.


Investment Considerations

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1. Liquidity2. Risk3. Return

Table 4.6 page 257

Investment Type Average Annual Return*

Best Year Worst Year

Small-Company Stocks 12.6% 142.9% (1933) -58.0% (1937)

Large-Company Stocks 10.4% 54.0% (1933) -43.3% (1931)

Long-Term Corporate Bonds

5.9% 42.6% (1982) -8.1% (1969)

Cash (U.S. Treasury Bills)

3.7% 14.7% (1981) -0.02% (1938)


* Includes both increases in price and any dividends or interest.


Stock Market Trends4-C

Copyright © 2008 Pearson Education, Inc. Slide 4-1 Unit 4C Savings Plans and Investments.

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