Unit 3 EconomicsCapital Markets / Investing

Identify the four things to consider when making an investment.

• rate of return

• risk/ diversification

• liquidity

• tax benefit.

compound interest

• Compound interest is money earned on a sum of money that is invested plus the interest paid on that money over time.

Identify the three reasons to save money.• To have security• To earn interest / present value v future value• for major purchase / college

Identify benefits of a mutual fund

• simplifies stock investing (uses experts)

• minimizes risk• balances high and low

performing stocks because it includes, blue chip and growth stocks, as well as bonds and other investment catagories.

Identify the following as either a high risk or low risk investment

• savings account• low risk• growth stock• high risk• corporate bonds• low risk• precious metals • high risk

Identify the two factors that have the greatest impact on compound interest.

• rate of return

• time

Identify eight different types of investments

• Savings account• Money market• Certificate of deposit• Bond• Blue-chip stock• Growth stock• Real estate• Commodities / Precious

metals, oil, crops, etc.

Capital

Money saved and loaned in order to earn interest and create economic wealth

Buying a number of investments to reduce risk and to balance out the high and low performers

• Diversification

Whether an investment is easy to sell, how quickly you can access your money.

• Liquidity

The purchase of something of value with the expectation that

over time it will increase in value and produce a profit

• investment

A share of ownership in a corporation

• Stock

Smallest unit of ownership in a corporation.

• share1

The idea that money is worth more now than it will be in the future.

• Present value

1990 1990

2010 / less $ 2010 / more $

The positive and negative investment qualities of a certificate of deposit are:

• Positives:• Higher interest rate than

regular savings account• Safe / federally

guaranteed

• Negatives• No liquidity

• No tax benefit

the best place to money to earn the highest rate of return on a retirement investment and also minimize risk is:

• A mutual fund

Money loaned to a business or the government for a moderate, fixed rate of return, but with little liquidity.

• bond

The positive and negative investment qualities of real estate?• Positives:• Place to live• Increases in value over time• Tax benefit

• Negatives:• No liquidity• Risky in the short-term• Has lower rate of return than

the stock market