Download Chapter Twenty

PRIDE
HUGHES
KAPOOR
INTRODUCTION TO
BUSINESS
ELEVENTH EDITION
Chapter Twenty
Understanding
Personal Finances
and Investments
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Learning Objectives
1. Explain why you should manage your personal finances
2.
3.
4.
5.
6.
7.
and develop a personal investment program
Describe how the factors of safety, risk, income, growth,
and liquidity affect your investment program
Understand how securities are bought and sold
Recognize how you can reduce investment risk and
increase investment returns
Identify the advantages and disadvantages of savings
accounts, bonds, stocks, mutual funds, and real estate
investments
Describe high-risk investment techniques
Use financial information to evaluate investment
alternatives
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Your Personal Finances

Be familiar with the three steps to Managing
Your Personal Finances

Define Personal Budget

What are warning signs your credit card
spending is excessive?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Your Personal Finances (cont’d)

Discuss Investment Goals and Personal
Investment
 What must Goals be?
 What are some questions to consider when
establishing goals?
 What are the Advantages of Long-Term
Investing?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Your Personal Finances (cont’d)

What does A Personal Investment Program
involve?

Define Financial Planner

What does the textbook suggest you do to help
you accumulate money needed to fund an
investment plan?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Important Factors in Personal Investment

Be familiar with the factors you must consider
when matching potential investments to goals
•
•
•
•

Safety and Risk
Investment Income
Investment Growth
Investment Liquidity
Be prepared to discuss the textbook’s
recommendations about managing investments
during a financial crisis
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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How Securities Are Bought and Sold

Know how Securities are generally bought and sold

Define
• Primary Market
• Secondary Market
• Account Executive
• Full-Service Broker
• Discount Broker

When choosing an account executive, what
problems may arise?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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How Securities Are Bought and Sold (cont’d)

Be prepared to go through the steps involved in
a typical stock transaction on the NYSE

Know the difference between a Market Order
and a Limit Order

What are Commissions?
 How do commissions vary between different
brokerage firms?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Regulation of Securities Trading

What is a Regulatory Pyramid?

Be prepared to discuss its Four Levels
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Factors That Can Improve
Your Investment Decisions

What variables will affect
• How you manage your Portfolio
• Your personalized Asset Allocation

Define
• Asset allocation
• The time factor
• Age

Know which investments are risky and which are low-risk

What is Your Role in the investment process?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Traditional Investment Alternatives

Know the advantages and disadvantages of investing in
• Bank Accounts
• Corporate Bonds
• Convertible Bonds
• Government bonds
-
Treasury Bills
Treasury Notes
Treasury Inflation-Protected Securities (TIPS)
Treasury Bonds
Savings Bonds (EE bonds)
Municipal Bonds
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Traditional Investment Alternatives (cont’d)

Be able to compare investing in different types of
stock
• Common Stock
- Stock Dividend
- Dividend Payments
- Capital Gain
- Market Value
- Stock Splits
• Preferred Stock
- Cumulative Preferred Stock
- Convertible Preferred Stock
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Mutual Funds

Define Mutual Funds and Exchange Traded
Funds
• Closed-End Funds
• Open-End Funds
• Exchange-Traded Fund

Be able to define and calculate Net Asset Value
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Mutual Funds (cont’d)

Define
•
•
•
•
•
•
Load Funds
No-Load Funds
Yearly Management Fee
Managed Funds
Index Funds
Family of Funds
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Mutual Funds (cont’d)

Be familiar with Types of Mutual Fund
Investments
•
•
•
•
•
•
•
•
•
•
•
Aggressive growth stock funds
Global stock funds
Growth stock funds
High-yield (junk) bond funds
Income stock funds
Index funds
Lifecycle funds
Long-term U.S. bond funds
Regional funds
Sector stock funds
Small-cap stock funds
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Real Estate

What are the Advantages and Disadvantages
of investing in Real Estate?

Be prepared to discuss the Real Estate
Checklist in your textbook
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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High-Risk Investment Techniques

Define
• Buying Long
• Selling Short
• Buying Stock on Margin
- Margin Requirement

Be familiar with high-risk investment choices
• Stock options
• Derivatives
• Commodities
• Precious metals
• Gemstones
• Coins
• Antiques and collectibles
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Sources of Financial Information

Discuss Sources of Financial Information
•
•
•
•
•
•

The Internet
Newspaper Coverage
Professional Advisory Services
Brokerage Firm Analysts’ Reports
Business Periodicals
Corporate Reports
What are Security Averages?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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