simple/compound interest

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simple/compound interest investments/risk v
return
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Insurance Clicker Quiz

• Grab Your Clickers ?

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1) What type of insurance should you get to cover
medical expenses?

• A) Life
• B) Health
• C) Property
• D) Disability

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2) What type of insurance should you get to cover
your loss of income in case of injury or illness?

• A) Life
• B) Health
• C) Unemployment
• D) Disability

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3) Your insurance provider paid 2,600 of your
hospital bill, but you had to pay the other 300
of it. What is the word for the amount you paid?

• A) Premium
• B) Deductible
• C) Liability
• D) Subsidy

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4) You pay 12 a month for property insurance on
your record collection. What is the word for this
payment?

• A) Premium
• B) Deductible
• C) Liability
• D) Subsidy

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5) While delivering the mail, a postman gets
struck in the arm by a passing car. An ambulance
takes him to the hospital, and after x-rays and
other tests are done, thedoctor states that no
bones were broken and no permanent damage was
done.Which of the following types of insurance
would be MOST beneficial for the postman as a
result of this accident?

• A) Auto
• B) Disability

• C) Health
• D) Life

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6) Carlton is injured while working at a retail
store. Which type of insurance is MOST LIKELY to
provide benefits while he is temporarily out of
work?

• A. life insurance
• B. disability insurance
• C. property insurance
• D. automobile insurance

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7) Alicia owns a home in the suburbs. If a
neighbor wrecks an automobile in Alicia's yard
and damages property, Alicia is protected from
financial loss by

• A. the neighbor's automobile liability policy.
• B. the neighbor's property insurance policy.
• C. Alicia's disability insurance policy.
• D. Alicia's automobile liability policy.

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(No Transcript)
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Can I Afford It?

• Video Clip

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How To Be A Millionaire Challenge

• (On Clickers)

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ActivityHow to Really Be A Millionaire

• Most millionaires are college graduates.
• T
• F

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ActivityHow to Really Be A Millionaire

• Most millionaires work fewer than 40 hours a
  week.
• T
• F

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ActivityHow to Really Be A Millionaire

• More than 1/2 of all millionaires never inherited
  any money from anybody.
• T
• F

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ActivityHow to Really Be A Millionaire

• More millionaires have American Express Gold
  Cards than Sears cards.
• T
• F

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ActivityHow to Really Be A Millionaire

• More millionaires drive Fords than Cadillacs.
• T
• F

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ActivityHow to Really Be A Millionaire

• Most millionaires work for big Fortune 500
  companies.
• T
• F

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ActivityHow to Really Be A Millionaire

• Many poor people become millionaires by winning
  the lottery.
• T
• F

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ActivityHow to Really Be A Millionaire

• College graduates earn about 65 more than high
  school graduates earn.
• T
• F

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ActivityHow to Really Be A Millionaire

• Day traders usually beat the stock market many
  of them become millionaires.
• T
• F

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ActivityHow to Really Be A Millionaire

• If you want to be a millionaire, avoid the risky
  stock market.
• T
• F

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ActivityHow to Really Be A Millionaire

• At age 18, you decide not to smoke save 1.50 a
  day. You invest this 1.50 a day at 8 annual
  interest until you are 67. At age 67, your
  savings from not smoking are almost 300,000.
• T
• F

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ActivityHow to Really Be A Millionaire

• Single people are more often millionaires than
  married people.
• T
• F
• -Compound interest lesson, FF4L how to really be
  a millionaire

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Investment Vocabulary

• Principal money borrowed or invested. Does not
  include interest paid.
• Interest The price of borrowing money, stated as
  a percentage.
• Simple interest calculated based on principal
  only.
• Compound interest interest calculated based on
  principal previous interest earned.
• Monthly better than quarterly better than yearly
  (for savers/lenders).

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Bean Activity

• Compound Interest

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(No Transcript)
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(No Transcript)
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Compound Interest Video Clip
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Basic Investment Considerations
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Who likes what best????

• Savers
• Borrowers

• Simple Interest
• Compound Interest

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Basic Investment Considerations

• Consistently invest
• Start investing early
• Diversify (invest in different types of things)

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U.S. Households Saving More of Disposable Income
(Chinese Save 25)
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Source Bureau of Economic Analysis, Data through
July 2009
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Critical Need to Build Savings and Investment

• 1/3 of adults have no savings.
• Only 11 of workers under age 35 contribute to a
  401-K plan.
• Medicare hospital coverage funded only through
  2018.
• Social Security currently funded only through
  2040.
• Unless economic growth speeds up dramatically,
  policy makers will either have to raise taxes or
  reduce benefits.
• Conclusion young people must begin to save and
  invest earlier.
• But, in order to save, young people must spend
  less.Opportunity Cost.

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Risk vs. Return

• Risk the probable frequency and probable
  magnitude of future loss.
• Return to bring in (as profit).
• What is the relationship between these
  two???????????????????????????????

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The GREATER the risk, the GREATER the possible
reward.

• In careers.
• In relationships.
• In sports.
• In investments.

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Investment Options

• CD (Certificate of Deposit) like a savings
  account you agree not to withdraw from for a
  certain period of time.
• Mutual Fund a corporation that exists only to
  buy stock in other corporations (easy way to
  diversify)
• IRAs 401(k)s tax sheltered retirement plans
• Bond JUST A LOAN
• to corporation (corporate bond)
• to government (Treasury bond)
• to local government (municipal bond)

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Risk vs. Return Activity

• Risk
  Return
• Bonds
• Stocks
• Savings Accts
• CDs
• Mutual Funds

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Basic Investment Considerations - Continued
The Relationship Between Risk Return
Stocks
Bonds
Mutual Funds
Risk
CDs
Savings Accounts
Return
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Asset Pyramid Proceed from Bottom Up
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Not A Gamble U.S. Stock Market History
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Why Stay with Stocks? Long-Term Annual Returns
(1925-2008)

• Small Company Stocks 11.7 (most risk)
• Large Company Stocks 9.6
• Long Term Corp. Bonds 5.9
• US Treasury Bills 3.7 (least risk)
• Inflation 3.0

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Real Gambling The Odds(about 50 of American
adults spend 45 billion /year on lotteries)

• Mega Millions (Jackpot) 1 in 175,711,536
• U.S. Powerball 1 in 80,089,128
• The Big Game (GA) 1 in 76,275,360
• Being killed by lightning 1 in 10,000,000
• Mega Millions (250K) 1 in 3,900,000
• Getting a royal flush in poker on first five
  cards 1 in 649,740
• House being struck by lightning 1 in 280,000
• Becoming a professional athlete 1 in 22,000
• Dying in car accident 1 in 18,585
• Being murdered 1 in 18,000
• Source MSN Money

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Consider Investment Options Around the Room

• Move to the point in the room that best
  represents your desired mixture of investments
  between the ages of 20 and 30.

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Consider Investment Options Around the Room

• Move to the point in the room that best
  represents your desired mixture of investments
  between the ages of 50 and 60.

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• If you choose to invest money, your two big
  options are stocks and bonds.
• Why is this guy recommending what hes
  recommending?

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(No Transcript)
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1) A man has 100 to invest and hopes to receive
10 times the amount back (1,000) by the end of 5
years. This could be BEST accomplished by

• A placing the money in a savings and loan account
• B depositing the money in a commercial bank
  account
• C purchasing 100 worth of stock in a start-up
  company
• D buying 50 worth of bonds and investing 50 in
  a mutual fund

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2) Bob has 25,000 that he would like to invest
in a diversified manner. Bob's BEST investment
option to accomplish this goal would be to

• A. purchase 25,000 worth of a company's stock.
• B. purchase 25,000 worth of zero coupon bonds.
• C. purchase 25,000 worth of shares in a mutual
  fund.
• D. purchase 25,000 worth of U.S. government
  securities.

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3) Eric has 2,000 that he wants to place in a
savings account. He has researched two accounts,
and both pay 3.5 interest. Account X pays simple
interest. Account Y pays compound interest. Eric
should choose

• A. account X because it would pay tax free
  interest.
• B. account Y because it would pay interest on
  interest.
• C. account X because the interest rate would
  increase over time.
• D. account Y because the interest rate would
  decrease over time.

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4) Why does consistent investing over long time
periods yield large returns for investors?

• A) Simple Interest
• B) Compound Interest

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5) Bonds are most like

• A) stocks
• B) insurance
• C) savings accounts
• D) loans

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6) Which would be the best deal for the borrower
on a 2 year loan for 5,000

• A) 7 simple interest
• B) 7 compounded monthly
• C) 7 compounded quarterly

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7) Which would be the best deal for the lender on
a 2 year loan for 5,000

• A) 7 simple interest
• B) 7 compounded monthly
• C) 7 compounded quarterly

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End
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Higher Returns Require Taking More Risk
Diversify to Reduce Risk
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Basic Investment Categories

1. Stocks (Equities) You own part of a co.
2. Mutual Funds, index funds (one way to diversify)
3. ETFS
4. Individual Stocks
5. Bonds (Fixed Income) You lend to govt or corp.
6. Government
7. Corporate
8. High Yield
9. Commodities
10. Mutual funds, ETFs
11. Real Estate
12. Direct Investment
13. ETFs
14. Cash

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Huge Advantage From Starting Early (Saving
100/month at age 25, assumes 8 return/year vs.
starting at age 35)
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Source Massena Education
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Bell Ringer

• Youre going to be saving money pretty soon (if
  youre not already).
• Which of these places will you keep your money,
  and why?
• Stock Market (you pick the stocks)
• Stock Market (mutual funds, or let an advisor
  pick the stocks)
• Savings Account
• Checking Account
• Cash Hidden Somewhere
• Retirement Account
• Some combination of the above (which ones?)
• None of the above (what then?)