Download Factors That Affect the Rate of Return on an Investment

T009-04.01
9.04 Analyze the factors that affect
the rate of return on a given savings
or investment plan and calculate the
rate of return.
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Savings Plan
• Putting money aside in a systematic order.
• Ways to put money aside:
– Regular deposit
– Automatic deposit
– Electronic funds transfer
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Starting a Program
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• Factors determining a program
– Safety
• Assurance that the money you have invested will be
returned to you.
– Liquidity
• Ease with which an investment can be changed into cash
without losing any of its value.
– Yield
• Rate of return (percentage of interest that will be added to
you r savings over a period of time).
– Diversification
• Process of spreading your assets among several different
types of investments to lessen risk.
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Factors That Affect the T009-04.04
Rate of Return on an Investment
• Risk - Chance of loss.
• Rate of Return (yield)
– Amount of money the investment earns.
– Compounding frequency is the interest computed on the
amount saved plus the interest previously earned.
• Liquidity
– Ease with which an investment can be changed into cash.
• Resistance to inflation
– Will rate of return keep up with inflation?
• Tax considerations
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T009-04.05
Factors that Affect the Selection of
Financial Institutions
• Services offered
• Business hours
• Location
• On line services
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Financial Security Investments
(low risk)
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Cash
Savings Accounts
Money Market Accounts
Certificate of Deposit
US Government Bonds
Retirement Accounts
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Safety and Income Investments
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US Treasury Securities
Conservative Corporate Bonds
State and Municipal Bonds
Income and Utility Stocks
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Growth Investments
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Income and Growth Stocks
Mutual Funds
Real Estate
Convertible Bonds
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Speculation Investments
(high risk)
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Options
Commodities
Precious Metals and Gems
Speculative Stocks
Junk Bonds
Collectibles
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Calculating Rate of Return
• Rate of Return = Total Interest Earned
divide by Original Deposit
• Example:
– If you deposited $100 in account that paid
$6.18 interest for one year. What is the rate of
return?
– $6.18/$100 = .0618 = 6.18%
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T009-05.01
9.05 Analyze how saving and
investing influences economic
growth.
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Savings and Economic Growth
• Individual savings allow:
– Businesses to expand and create more jobs.
– Demand for goods and services to increase.
• Failure to save will cause less money to be
invested and the economy may slow as a result.
• Savings contribute to our economic stability
• Government uses savings to build highways,
schools, and public services
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T009-06.01
9.06 Describe wills and
other legal documents.
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Wills
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• Legal document that specifies how you want your
property to be distributed after your death.
• Intestate
– Die without a legal will
– State will step in and control the distribution of your
estate.
• Probate
– Legal procedure of proving a will to be valid or invalid.
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Wills
• Simple Will
– Leaves everything to your spouse
• Formal Will
– Prepared by an attorney.
• Holographic Will
– Handwritten will that you prepare yourself
– Needs to be written, dated, and signed entirely
in your own handwriting.
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Other Legal Documents
• Trusts
– Legal arrangement that helps manage the assets of your
estate for you benefit or that of your beneficiaries.
• Living Will
– Document in which you state whether you want to be
kept alive by artificial means if you become terminally
ill and unable to make such a decision.
• Power of Attorney
– Legal document that authorizes someone to act on your
behalf.
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Guardian
Person who accepts the responsibility of:
1. Providing children with personal care
after their parents’ death
2. Managing the parents’ estate for the
children until they reach a certain age
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T009-07.01
9.07 Explain how agencies regulate
financial markets and protect
investors.
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Regulators
• Securities and Exchange Commission
(www.sec.gov)
– Protect investors and maintain the integrity of
the securities markets.
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Regulators
• NASD (www.nasd.com)
– Registers member firms, writes rules to govern
their behavior, examines them for compliance
and disciplines those that fail to comply.
– Largest private sector provider of financial
regulatory services.
– Has helped bring integrity to the markets and
confidence in investors.
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Protecting Investors
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• Department of the Secretary of State
(www.secretary.state.nc.us /sec )
• State Securities Laws
– Known as “blue sky” laws
– Intent of laws is to protect the investing public by
requiring a satisfactory investigation of both the people
who offer securities as investments and of the securities
themselves.
– Securities division addresses investor complaints
concerning securities brokers and dealers , investment
advisers and commodity dealers as well as complaints
about offerings of particular investment vehicles.
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