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Personal Finance 101 Economics 101 I KEY TERMS

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Personal Finance 101 Economics 101 I KEY TERMS Powered By Docstoc
					              Economics 101
I. KEY TERMS
 ECONOMICS
          - the study of money.
          - how resources are managed
 SCARCITY
          - shortness of supply
          - the basis problem of economics
 CHOICE
INCENTIVES – things that motivate us to take action.

1. Financial


2. Social



3. Moral
COST-BENEFIT ANALYSIS




OPPORTUNITY COST
- WHAT YOU GIVE UP WHEN YOU MAKE A
 DECISION
                   COMMUNISM               CAPITALISM

Philosophers         Karl Marx             Adam Smith
                  Fredrick Engels

                   “Communist           “Wealth of Nations”
   Book              Manifesto”



Ownership of        Community               Individuals
   capital         (through the
  (wealth)             govt.)
                                         Pursuit of profit
                Equality, no classes     benefits both the
               Requires a revolution,     individual and
   Goal           “workers of the             society
                    world unite”
I. BASIC CONCEPTS OF
PERSONAL FINANCE
 A. When you borrow money
 you PAY interest


  B. When you invest money
  you EARN interest
 II. YOUR INVESTMENT PORTFOLIO
Your $ working for you   Benefit             Cost
Checking                 -everyday use       Low interest
account                  -easy to access $   < 1%
                         w/ atm card
Savings Account/         Should equal 2      Low interest
                         months salary       <2%
Emergency fund
                         Easy to access

IRA (Individual          Not taxed           Cannot
                                             access until
Retirement                                   59.5 years
Account 401k,                                old w/out big
403b, Roth)                                  penalty
                      Benefit           Cost
CD (Certificate of    Fixed interest    Cannot access
Deposit)              Fixed time of     until matures
                      maturity          w/out big penalty
                      No risk           !!will rollover


Real Estate           - Ownership       Difficult to turn
                      - Historical      into cash
                      upward trend in   Down Payment
                      Chicago           10-20 %
Bonds – I.O.U.’s to   Fixed interest    Cannot access
Government or         Fixed time of     until matures
Business              maturity          w/out big penalty
                       BENEFIT               COST

stock – share of   Ownership           Minimum # of
ownership in a     Dividend            shares to get in
company            Historical upward   All eggs in one
                   trend               basket


Mutual Fund –      Diversification   Minimum # of
fund manager       Fund manager      shares to get in
spreads your       expertise
money out in the   Historical upward
stock market       trend
                   7-8% interest
Rule of 72 –
  interest rate divided by 72 = number of
   years it will take to double your money

Liquidity -
    how fast the investment can be turned
   into cash

Diversification – spreading your money out
   to several securities (stock, bonds,
   mutual funds, etc) to reduce risk.
III. Personal Finance 101
        Basics
          1. Save early and often

       2. Save as much as possible
             (10% of income minimum)

              3. Have a plan

    4. Save and Invest for the long term

   5. Gather information before deciding
              (benefit –cost analysis)
I. STOCK MARKET VOCABULARY
                  CHICAGO
              BULL MARKET –
                  BOARD OF
                      ARE ON
              STOCKS (CBOT)
                TRADE
BEAR MARKET THE RISE, GOOD
– STOCKS ARE TIME TO BUY
DOWN, GOOD
TIME TO SELL
STOCK – SHARE OF OWNERSHIP

DIVIDEND – PROFITS PAID TO A
             SHAREHOLDER

BLUE CHIPS – STOCKS THAT HAVE
         CONSISTANTLY DONE WELL
Market Cap =
       Total value of a company

Securities and Exchange
 Commission (SEC)
– government agency that regulates
   the stock market
   II. MARKETS
NYSE
   (New York Stock Exchange) 1792 - +3000 companies
    hybrid of electronic and open outcry

NASDAQ
  ( National Association of Securities Dealers Automated
  Quotations) electronic, screen – based +3200 companies

CBOT
( Chicago Board of Trade ) 1848   Futures and Options

CME ( Chicago Mercantile Exchange)
III. INDICES ( INDEX)
    way to measure how
the stock market is doing
DOW JONES
     - Top 30 companies
S+P 500
    - Standard and Poor top 500
NASDAQ
    – measures all 3200 stocks trades on
                   NASDAQ
                                                      Stock
Where                                                 Symbol
traded                                                for NIKE
NYSE =
New York
Stock
Exchange


Parent                                                           1 year
Company                                                          high and
                                                                 low stock
           Current                                               price
           price for 1   Market price of the entire
           share         company, total value
           Click
           here to
           find
           industry

				
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posted:1/19/2011
language:English
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