Module 4: Investing

On$500 earning5 percent APY, calculate the ending balance after two years if interest is compounded semiannually

$551.90or $551.91 Compound Interest Formula Method$500 principal x(1 + .05 annual interest/2 times a year)2 times a year x 2 years$500 x ($1.025)4= $551.91 Simple Interest Method(alternative)Term 1: $500 (principal) x .05 (annual interest) x .5 (half year) = $12.50 (interest)Term 2: ($500 + $12.50) x .05 x .5 = $12.81Term 3: ($512.50 + $12.81) x .05 x .5 = $13.13Term 4: ($525.31 + $13.13) x .05 x .5 = $13.46Final Balance: $538.44 + $13.46 = $551.90

List two strategies that a new investor should avoid when investing

- flipping stock -blind trust in sources of information -getting emotional about holdings -relying only on past performance -borrowing to invest -holding only one type of investment

Explain the dollar cost averaging investing strategy by writing a narrative description or by creating an example

-Invest a set amount of money at regular intervals. -Invest consistently rather than investin gone lump sum. -This strategy can involve large or small amounts. -Consistent investing has more potential to benefit from compounding or reinvested earnings earlier than waiting to save up a sizable lump sum to investlater

What is the difference between saving and investing?

-Saving is setting aside money to use later. -Investing is using money to buy something that will potentially make more money

Along with diversifying investments, what are two other recommended investing practices?

-develop an investing strategy -start now/early -invest for the long-term-invest regularly -do homework before investing in something -develop an investing strategy for selecting investments -monitor investments to make adjustments

Give two reasons why investment experts recommend diversifying investments

-minimize risk of losing money because money is invested in different types of investments -minimize risk of losing money because money is invested in different types of industries -boost odds that at least one type of investment will show growth

List two reasons to save money in a bank or credit union savings account rather than hiding it in an envelope in your room

-safety because the savingsaccount is insured -interest is earned on the amount saved -easy to keep track of account balance online -less tempted to use the money impulsively is setting aside money to use later

In the left column, rankthe investments highest (#1) to lowest (#5) to compare the riskof the investments. - Collectible - Corporate Bond - Mutual Fund - Savings Account - Stock

1 - Collectible 4 - Corporate Bond 3 - Mutual Fund 5 - Savings Account 2 - Stock

In the left column, rank the investments highest (#1) to lowest (#5) to show how they compare according to the potential for return - Balanced Mutual Fund - Certificate of deposit - Money Market Deposit account - Start-up stock - US Savings Bond

2 - Balanced Mutual Fund 4 - Certificate of deposit 5 - Money Market Deposit account 1 - Start-up stock 3 - US Savings Bond

Koneta has money saved and invested several ways with a goal to grow her money at a rate higher than inflation. What is the historical long-term annual average rate of inflation?

3%

The time value of money can best be explained using which one of the following concepts?

A dollar today is worth more than a dollar tomorrow.

Something of value thatcan be changed into cash

Asset

Earning interest on previously earned interest plus the principal amount

Compounding

Spreading your money among different savings and investments

Diversification

If you buy Hershey stock, you share ownership in the company and you can vote on the types of chocolate that will be produced

F

Minors have to wait until they are adults before they can buy and stocks and bonds

F

Most wealthy people have gained their fortunes by winning the lottery or inheriting a large sum of money.

F

The best time to start investing is after working on a job full-time for at least five years

F

Monica starts a mutual fund with $500 and adds $500 to her mutual fund every year for anothernineyears. Mason decides to wait 10 years so he cansave up a lump sum of $5,000 to invest at one time in a mutual fund. If both Monica and Mason earn on average of 7 percent APY, who will have the larger mutual fund balance in 20 years?

Monica[Monica started investing early and has the advantage of compounded interestand reinvested earningsover theten years before Masonstarts to invest.

Which statement below is trueabout mutual funds?

Mutual funds are convenient and professionally managed

Label at least four elements of the TWTR stock quotation below: NYSE TWTR Bid: 64.90 Ask: 65.19 Last: 64.50

NYSE - New York Stock Exchange where this stock is bought and sold TWTR - Ticker symbol for company name (Twitter Bid: 64.90 - The current purchase price offered by abuyer, $64.90 a share Ask: 65.19 - The current selling price offered by the seller,$65.19 a share Last: 64.50 - The last pricepaid for share ofstock, $64.50 a share

A type of income investment

Savings Account

A type of growth investment

Stock

Asystem where the public can buy or sell stock shares

Stock Exchange

Although he is only 17, Sean can invest in a retirement fund because he earns income from his summer job at the health club

T

Three steps to build wealth include 1) Have enough income to invest, 2) Make a plan, and 3) Put money to work by investing

T

Which oneof the follow is notan example of investing?

buying a car to get to work

Given the same principal amount and interest of 1.3 percent APY for all options below, which option will earn the most interest over three years?

certificate of deposit that has interest compounded daily

As Koneta decides how to invest her money, which one of the following options is most likely to grow at a rate higher than inflation?

mutual fund

Kyle isn't willing to take much risk with his money as hesets money aside to use when he buys a car next year. Which one of thefollowing types of investments potentially has the lowestinvestment riskwhile also growing in value?

savings accoun

Kendra just received a promotion with a nice raise. She has her spending plan under control, so she decides to adjust her long-range investing plan now that she can take on more investment risk. Which one of the following types of investments potentially has the highest riskand is most likely a higher rate of return for Kendra?

stocks

The basic rule of a risk-to-return relationship is that ..

the higher the risk, the higher the return rate.