Download Financial Markets

Warm Up #37
Give 5 things that you will or have saved for.
Explain how long it took to receive the item
that you were saving
5 minutes
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SSEF1
You will be able to apply rational decision making to personal spending and saving
choices.
A. Explain that people respond to positive and negative incentives in predictable
ways.
B. Use a rational decision making model to select one option over another.
C. Create a savings and financial investment plan for a future goal.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
A. Explain (clarify) that people respond to positive and
negative incentives in predictable (expectable) ways.
B. Use a rational (sensible) decision making model to
select one option (choice) over another.
C. Create a savings and financial (monetary)
investment plan for a future goal.
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Personal Finance and
Financial Markets
Rational Decisions for Personal
Spending and Savings Choices
SSEPF1
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Is this a legitimate complaint and is
someone able to sue for $100 million?
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Is this a legitimate complaint and is she able to sue
for $100 million?
Lindsay Lohan Sues Over TV Ad
ACTRESS LINDSAY LOHAN HAS SUED AN ARM OF E*TRADE FINANCIAL
CORP., THE OPERATOR OF A POPULAR ONLINE BROKERAGE, ALLEGING
THE COMPANY MISAPPROPRIATED HER NAME AND PERSONALITY IN A
RECENT TELEVISION ADVERTISEMENT.
THE LAWSUIT ALLEGES THAT THE DEPICTION OF THE SECOND GIRL
"DISREGARDED AND VIOLATED" MS. LOHAN'S RIGHT "TO THE
EXCLUSIVE CONTROL OF THE COMMERCIAL USE OF HER LIKENESS,
NAME, CHARACTERIZATION AND PERSONALITY." IT ALSO ALLEGES
VIOLATIONS OF TWO SECTIONS OF NEW YORK'S CIVIL-RIGHTS LAW.
MS. LOHAN'S LAWYER, STEPHANIE OVADIA, SAID SHE HAS HEARD
FROM MANY PEOPLE WILLING TO HELP HER PROVE HER CASE.
"THEY'VE SAID THAT LINDSAY [LOHAN] WAS THE FIRST PERSON THEY
THOUGHT OF WHEN THEY SAW THE COMMERCIAL," MS. OVADIA SAID.
"PEOPLE SEEM VERY WILLING TO HELP."
A CALL TO AN E*TRADE REPRESENTATIVE WASN'T RETURNED.
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What motivates people to act in a particular way?
Incentives
Two types:
Positive Incentives
•
•
A reward that a person is likely to receive if they behave in a certain
manner.
i.e. 10% raise if Joe sells 80 pairs of shoes this month
Negative Incentives
•
•
A punishment or negative consequence that one wants to avoid for
failing to behave in a certain manner.
i.e. being fired if Joe fails to sell 80 pairs of shoes this month
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Needs
• Things
necessary to
survive
Wants
• Our desires
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Rational Decision Making Model
Define the problem
List the alternatives
State the criteria (most important to you)
Evaluate the alternatives
Make a rational decision
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How do you decide on what to
buy and when to buy it?
Create a savings or financial investment plan for a future
goal.
Long-term goal
•
A want that takes a year or more
– i.e. good used car, vacation, retirement
Short-term goal
•
A want that is achievable in 6 months
– i.e. prom dress, concert
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A Financial Plan
What I Want
What it Costs
What I Can
Do
When I Can
Get it
Short-Term
Goal
Prom Dress
$300
Earn and save
$30/week from
baby sitting
Long-Term
Goal
Used Car
$2000
Save $10/
week
From allowance
And get
after-school
Job; save
$30 week
10 weeks
1 year
From
now
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Closure Activity #32
Your Financial Plan for 2 items
What I Want
What it Costs
What Can I
Do
When I Can
Get it
Short-Term
Goal
Long-Term
Goal
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The End.
Any Questions?
Any Questions?
Any Comments?
Any Comments?
Any Concerns?
Any Concerns?
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Warm Up #38
Look at the overhead for and answer
the 3 questions on
TT58 Barriers in Real-World Trade
Trade Barriers in 2006
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SSEPF2
You will be able to explain that banks and other financial institutions are
businesses that channel funds from savers to investors.
C. Give examples of the direct relationship between risk and return.
D. Evaluate a variety of savings and investment options; include stocks,
bonds and mutual funds.
Determine and define vocabulary. Identify key terms within the standard.
Define each term.
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
C. Give examples (samples) of the direct (non-stop)
relationship between risk and return.
D. Evaluate (Assess) a variety (diversity) of savings
and investment options (choices); include stocks,
bonds and mutual (joint) funds.
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Personal Finance and
Financial Markets
Financial Institutions for Saving
and Investing
SSEPF2
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What are the ways that people see their money
grow?
Savings
•
Money deposited in a bank or
other financial institutions, for
later use
Interest
•
Money earned for the use of
your savings
Investments
•
Money you pay into a business
with the expectation, but NOT
the guarantee, of future rewards.
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What kinds of Financial Institutions can I place my
money?
Commercial Banks
•
Receive deposits of money,
extend credit, and provide loans.
FOR A PROFIT.
Credit Unions
•
A not-for-profit, that is owned
and controlled by its members,
offer checking, savings, and
grant loans.
Savings and Loans
•
Lend money out for mortgages
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Who insures the money that you put into banks?
Federal Deposit Insurance Company (FDIC)
• Protects deposits up to $250,000, if the bank
goes bankrupt, you will not lose your money.
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When and where do you invest money?
In a business or the
government for a
specified time, in return
for interest. But you are
taking a risk of losing
money as well.
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Risks and Returns
Risks
• The greater the risk
you are willing to take
the higher the
potential rewards you
can earn
Returns
• The lower the risk you
are willing to take the
lower the potential
rewards you will earn
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Risk and Return
What Kind of Risk Are You Willing to Take?
• Risk usually means loss of part initial investment, or
principal
– no-risk investments: insured savings and CDs, U.S.
government bonds
• Safe investments risk interest rate may not keep up with
inflation
• Return on riskier investments depends on how profitable
company is
– bonds less risky than stocks; bondholders paid off first
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Risk and Return
What Kind of Return Do You Want?
• Safe investments have lowest return through fixed
interest rates
• Stocks, bonds—no guaranteed rates; stocks—higher
return over time
– If investing over a long period, can risk losses in stock
some years
– if less time and money, may want safer investment
• Diversification gives better chance of offsetting a loss
with a gain
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Three most important kinds of investments are:
A. Bonds
• Lending money to a firm, government
(state/local), or public construction project. It pays
you interest periodically and then repays the cost
of your bond + interest years later, when it
“matures”.
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B. Stocks
Buying shares in the
ownership of a corporation,
earning a dividend from the
corporation’s profits, but is the
riskiest with the highest
potential rewards.
• Capital Gains
–When you earn a profit
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C. Mutual Fund
Pools money from many investors and uses
it to buy a variety of stocks and bonds called a
Portfolio.
• Usually combines low-risk with high-risk
stocks so investors can never lose all their
money.
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Why Buy Bonds?
Types of Bonds
• U.S. government issues Treasury bonds, notes, bills; very
safe
• Safety of foreign government bonds depends on the
country
• State, local governments issue bonds; no federal
income tax
• Corporate bonds higher risk than government, pay higher
coupon rate
– Junk bonds are high-risk, high-yield corporate bonds
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The Stock Market
Why Buy Stock?
1. Buy to earn dividends, share of company profits
– investors who want income, want dividends
2. Buy to earn capital gains through resale of stock
– investors who want growth look for potential for
capital gains
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The Stock Market
Types of Stock
• Common Stock—gives shareholders voting rights,
share of profits
– one vote per share owned to elect board of directors
•
Preferred Stock—gives shareholders share of profits, no
voting rights
– investors get guaranteed dividends, paid off first if
company closed
– dividends do not increase if stock increases in value
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Trading Stock
KEY CONCEPTS
• Most people buy stock to earn capital gains
• Stock prices determined by demand and supply;
influencing factors:
–company profits or losses, technological
advances, overall economy
• Stockbroker—buys and sells securities for
customers, earns commission
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Trading Stock
Organized Stock Exchanges
• New York Stock Exchange (NYSE) on Wall Street;
oldest, largest in U.S.
– traditionally, each stock auctioned from trading post on
exchange floor
– today, hand-held computers used to execute many
trades
– 2006 merger with Archipelago Exchange allowed
electronic trades
• American Stock Exchange (AMEX) companies smaller
than on the NYSE
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Trading Stock
Electronic Markets
• Over-the-counter (OTC) market for stocks not traded on
NYSE or AMEX
• NASDAQ is centralized computer system for OTC trading
– second largest exchange in world in number of
companies, shares traded
– companies from many sectors of U.S. economy, most
in technology
• OTC Bulletin Board is electronic market for smaller
companies
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Measuring How Stocks Perform
Tracking the Dow
• Bull Market—prices rise steadily over a relatively long
period
– 1972 to 2000 longest bull market in history; most last
two to three years
• Bear Market—prices decline steadily over a relatively
long period
– Dow affected by the previous close also the Fed,
foreign indexes, and trade balance.
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Mutual Fund
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Closure Activity #33
Mellody Hobson:
Investing in the Future p. 326
Why does Mellody Hobson want to make more people
aware of investing?
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The End.
Any Questions?
Any Questions?
Any Comments?
Any Comments?
Any Concerns?
Any Concerns?
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Warm Up #39
Answer the Following:
1. Julio had $20,000 in his savings account when his bank
declared bankruptcy. What happens to his
money?________________________
2. Which investment offers the highest chance to make the most
money?______________________________
3. Which investment offers the lowest?__________________
4. Which investment is the safest to put your money?______
5. If a bank pays 3% interest on savings, how much interest will
it charge for loans to people? ____________________
6. If Antonio has $260,000 in his money market account at the
bank, and the bank declared bankruptcy. What happens to his
money?_____________________________
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SSEPF4
You will be able to evaluate the costs and benefits of using credit.
A. List the factors that affect credit worthiness.
B. Compare interest rates on loans and credit cards from different
institutions.
C. Explain the difference between simple and compound interest rates.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
A. List the factors (causes) that affect credit (obtain
goods and pay later) worthiness (value).
B. Compare interest (charge for borrowing money)
rates on loans and credit cards from different
institutions (organizations).
C. Explain (clarify) the difference between simple (pay
on the principal) and compound (pay on the
principal and on accrued) interest rates.
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Personal Finance and
Financial Markets
Using Credit
SSEPF4
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What is Credit?
Credit
• The ability to
obtain
goods and
services
now, and
agree to pay
for them
later.
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What are some factors on how you receive credit?
Credit Worthiness
• Are you able to pay the
money back?
• Are you likely to pay it
back?
• Where do you work,
how much do you make,
do you save, your
expenses, etc?
“THANK YOU, I shall always be in your debt.”
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What if you do not pay it back?
Collateral
• Property you own
that the bank could
take away from you.
Credit History
• Companies called credit
bureaus collect
financial information on
everyone, and they give
you a score based on
that information.
• The higher the score
the more likely you are
to receive a loan.
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How do you keep a good credit history?
Pay Bills on Time!
Have a steady work history.
Open a checking account (don’t bounce any
checks!)
Open a savings account
*Because your credit history follows you for your
whole life!
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Looking at the Making wise credit decisions.
Take your monthly income, minus deductions taxes,
Social Security, and health insurance.
• Variable Expenses
– The amount you usually spend every month (food,
entertainment, clothes, etc.)
• Fixed Expenses
– The amount you must pay every month (rent, utilities,
car etc.)
*Do you have enough to take on more debt?
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Interest Rates:
Loans vs. Credit Cards
Loans
Credit Cards
• Usually a fixed annual
rate of simple interest
• Usually charge different
types of interest such as:
– Annual Fee
– COMPOUND
INTEREST
– Finance Charges
– Much higher rates
How are simple and compound
interest rates alike?
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What is the difference between SIMPLE and
COMPOUND interest?
Simple
•
Means that you are charged
interest ONLY on the original
amount of the loan.
$1000+ (10% X 1000)=
$1,100
Compound
•
Means you pay on the principal
(original amount) + any interest
added to the bill. It could be
added every month.
Month 1:
$1000+ (10% X 1000)=
$1,100
Month 2:
$1000+ (10% X 1,100)=
$1,200
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Closure Activity #34
Tyler’s family wants to buy a DELL computer
that costs $2000. They could get a 3 year
personal loan from Bank of America at a fixed
rate of 10% simple interest. They could also get
a 3 year loan from a finance company that
charges 9.5%, compounded annually.
Calculate the total cost of each loan after 3 years
and then decide which credit offer the family
should accept. 3 minutes
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The End.
Any Questions?
Any Questions?
Any Comments?
Any Comments?
Any Concerns?
Any Concerns?
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Warm Up #40
Do in the Chapter 5 Georgia EOCT
Review book pages 122-124.
1, 2, 4, 6, 7, 8, 12, & 14
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SSEPF5
You will be able to describe how insurance and other risk-management strategies
protect against financial loss.
A. List various types of insurance such as automobile, health, life, disability, and
property.
B. Explain the costs and benefits associated with different types of insurance;
include deductibles, premiums, shared liability, and asset protection.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
A. List various (many) types of insurance (coverage)
such as automobile, health, life, disability (ill
health), and property.
B. Explain the costs (expenditure) and benefits
(advantages) associated (connected) with different
types of insurance (coverage); include deductibles
(insured by company), premiums (paid by
policyholder per month), shared liability (money
owed), and asset (ability) protection.
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Personal Finance and
Financial Market
Types of Insurance
SSEPF5
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What is the purpose for Insurance?
Is to provide financial protection against
different kinds of risks we face in life.
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What is the purpose for insurance and how
does insurance works?
Insurance Policy
• A written agreement between you
and the insurance company,
explaining what losses the company
will cover and what YOU will pay.
Coverage Limits
• Maximum amount the company will
pay you for your loss.
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How does insurance works?
Deductible
• The amount of loss that you must pay yourself before the
company will step in and pay the rest
Premium
• Is the amount of money you must pay per month, per
quarter, or per year
*The higher the premium the less deductible;
the less the premium the higher the
deductible.
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Types of Insurance
A. Car Insurance
•
•
B.
C.
D.
E.
•
•
Limited coverage- To pay for any personal injuries or property
damage.
Collision coverage- To pay for any damage to your own car.
Health Insurance
Property Insurance
Disability Insurance
Life Insurance
Term Life- Cheaper and pays higher death benefit, but buys only
for a limited time.
Whole Life- Expensive and pays less death benefit, but covers you
whole life and premiums never increase.
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Class Assignment
Do in the Georgia EOCT book
Page 117 1-4.
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Personal Finance Economics
Determining Workers’
Earnings
SSEPF6
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
SSEPF6
You will be able to describe how the earnings of workers
are determined in the marketplace.
A. Identify skills that are required to be successful in
the workplace.
B. Explain the significance of investment in education,
training and skill development.
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Preparing Yourself for the Job Market
What should you do after you graduate?
Full-time job, trade school, college, or military.
Trade-Offs
• If you get a job right away, more money now,
less money in the future.
• If you invest in education or training, less money
now, more money in the future.
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Job Market
Jobs operates according to supply and demand.
Unskilled Jobs (fast-food restaurant)
• Very high in supply, but low wages
Skilled Jobs (brain surgeons)
• Low in supply, but high wages
*There is a direct relationship between your level of
education and your income.
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How to choose a career and be successful?
Entry-Level Job
–One with a low level of responsibility and
income
Career Path
–A series of jobs with steadily increasing
responsibilities, opportunities, and
income.
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How to choose a career and be successful?
Depends on your natural skills and talents.
How much money you would like to earn?
What kind of work environment you enjoy?
Whether the demand for workers in your chosen
field is likely to increase or decrease in coming
years.
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Closure Activity #35
List 3 Possible careers that interest
you.
List 5 skills and qualities that you
believe you have now, beginning with
you strongest ability.
Look at the list again and find 2
qualities or skills that you need to
improve on.
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Personal Finance Definitions and TEST
Commercial Banks
Credit Unions
Savings and Loans
Risks
Rewards
Rational Decision
Needs
Wants
Negative
Long-term goal
Consumer Sovereignty
Divisibility
Portability
Short-term goal
Positive
FDIC
Portfolio
Capital gains
Stocks
Bonds
Mutual Fund
Matures
Commodity
Durability
Acceptability
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The End.
Any Questions?
Any Questions?
Any Comments?
Any Comments?
Any Concerns?
Any Concerns?
NEXT