Download Money and Investing - St. John the Baptist Diocesan High School

Money Investments
 What is an investment?
 Investment is something
bought for future
financial benefit.
 Promotes economic
growth
 Contributes to wealth
of a nation
 ex. Houses
 Cars
 Physical capital
 Human capital
Money and Investing
 Financial system - allows the transfer
between savers and borrowers.
 Financial Intermediaries – an institution that
helps channel funds from savers to borrowers.
 They are the link.
 Can anybody give an example of a financial
intermediary?
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banks,
pension funds,
credit unions,
insurance company’s,
finance company’s
Mutual Funds
Money and Investing
 Financial intermediaries
 Share risk:
 Diversification:
 Mutual Funds:
 Portfolio’s
 Provide Information
 On investments (companies)
 Prospectus
 Provide more liquidity
 Speed to change investment into cash
Money and Investing
 Return –amount of money that an investor
receives above and beyond the sum that has
been invested.
 Rate of Return – refers to the return stated in a
percentage of the total amount invested.
 Capital gains –difference between the selling
price and the purchase price that results in the
financial gain of the seller. (per share)
 Capital losses – difference between the selling
price and the purchase price that results in the
financial loss of the seller. (per share)
Do Now
Who can give an example of what a
financial asset or security is?
Financial Assets or
securities
 A claim on the property or income of a
borrower.
 Give examples ?
 Bonds
 Stocks
 Options.
 Homes ownership
 Loans.
Types of Markets
 Capital markets – a market in which
money is lent for periods longer than a
year
 Money markets – a market in which
money is lent for periods of less than a
year
Types of markets
 Primary market; a market where newly
issued financial assets can be redeemed
only by the original holder.
 Secondary market: a market in which
financial assets can be resold.
What is a bond?
 Bonds are debt.
 When you buy a bond you are lending
money.
 Parts of a bond.
 Coupon – is the interest rate a seller will pay a
buyer
 Maturity – time when a loan is to be repaid.
 The longer the maturity the larger the risk.
 Par – amount to be repaid to the investor.
Do Now?
 What is an investment?
 Give examples
 What is a financial asset ?
 Give examples
 What is a financial intermediary?
 Give examples.
 What are the four types of markets and
how are they different?
Types of Bonds.
 U.S. saving bonds
 Treasury Bonds
 T Bills – under 1 year
 T notes 2yr , 3yr, 5yr, 10yr 30 yr.
 Are the least risky because they are back
by the United States Government.
Municipal bonds
 Municipal bonds – issued by state and
local governments to pay for such things
as highways, parks, buildings, and
schools. (Munis)
 Investors do not have to pay state tax on
Munis.
Corporate bonds
 Bonds sold to help raise money to make businesses
bigger.
 Riskier than government bonds.
 These bonds are rated by independent companies
 Standard and Poor and Moody’s are the biggest rating
agencies.
 S&P
Moody’s
 AAA
 AA
 A
Aaa
Aa
A
 BBB
Baa
 BB
Ba
B
B
 CCC
Ca
 Higher the rating the lower the risk.
Certificates of Deposit
 Certificates of Deposit or CD’s.
 Safe investment,
 Can’t take money out until the maturity.
Do now
 Does a bond with a maturity date that is two
years away more or less risky than a bond that
has a maturity that is 10 years away?
 Comparatively a bond with which rating will pay
the highest interest rate and why?
 AAA
 BBB
 CCC
Junk bonds/ High Yield
 Junk bonds are high risk and possibly
high yield.
 They are not investment grade
 Anything below BBB Baa
The Stock Market
 Stocks are certificates that signifies
percentage ownership within a company.
 Ex.
 Under Armour (UA)
 Market cap
 Last trade
 52 week high and low
http://finance.yahoo.com/q?s=ua&ql=1
Where are stock bought
and sold?
 Where are stocks bought and sold
 Stock Exchanges – market where stocks are
bought and sold.
 Does anybody know two exchanges that
based in New York?
 New York Stock exchange (NYSE)
 Nasdaq
 Brokers and Brokerage firms buy and sell
stock for investors.
The Stock Market
 All holders of stock have a say in the company.
 The holders of the majority of stock in the
company can make the decisions for the
company
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http://www.youtube.com/watch?v=Kc2_jIB2jyA
&feature=related
Do Now?
1.
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4.
5.
What is a share of stock?
Where can u buy shares?
From whom can you buy shares?
Why do company’s go public? (IPO)
How are risk, liquidity, and return
related?
Why do Companies Issue
Stock?
 It is a way for Companies to raise money
for a project without going into debt.
Common Vs. preferred
stock
 Preferred stock owners
 No voting rights
 Bankrupt collect before common
shareholders
 Pay dividends
 Common Stock
 Voting rights for officers
 Have say in company policy
Do now
1. Why do companies sell IPO’s?
2. What is the difference between a
common stock and preferred stock?
3. What do the ratings of a bond tell us
about that bond?
Income vs. Growth stocks
 Income stocks
 Give extra income
 Pay dividends
 http://finance.yahoo.com/q?s=gs&ql=1
 Growth
 Use income to build business
 Grow in value over time
 http://finance.yahoo.com/q?s=ua&ql=1
Options and Futures
 Futures are contracts to buy or sell
commodities or financial assets in the
future at a price set today.
 Options give a holder of a stock the right
to buy or sell stock at a set price or a set
period of time.
 Call option - right to buy
 Put option - right to sell
Bears vs. Bulls
 Bears - feel the market and the economy
is slowing.
 Cautious investors
 Market is falling
 Bulls – feel the market and economy are
strong.
 Will purchase stocks
How to track the market
 Dow Jones industrial average
 30 top industrial stocks on the NYSE
 The S&P 500 or Standard and Poor’s
500
 Tracks the 500 stocks on both the NYSE
and the NASDAQ.
Company’s in the Dow
 http://money.cnn.com/data/markets/dow/
TRACKING Individual
STOCKS
 52 WEEK HIGHS AND LOWS.
 MANY PERIODICALS TRACK 52 WEEK
HIGHS AND LOWS FOR THE NYSE AND
THE NASDAQ
 IT IS THE HIGH AND LOW CLOSING
PRICE FOR THE LAST 52 WEEKS.
Round up
 What is a difference between a future
and option?
 Why would an investor want to diversify?
 Can you sell a stock without owning it?