intro 3 - TTU Personal Finance Concentration PFP 4361...

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TTU – Personal Finance Concentration TTU Personal Finance Concentration PFP 4361 Personal Finance: Advanced Topics and Case Studies Module 1 – Review of Personal Finance Part III
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TTU – Personal Finance Concentration Presentation Agenda 1. Stocks, Bonds and Mutual Fund Quotations 2. Insurance Services and Hedging Strategies 3. Investment Decisions 4. Understanding the Relationship between Personal Finance and Investment 5. Using the Personal Finance to make Rational Investment Decisions 6. Understanding Risk and Return 7. Summary
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TTU – Personal Finance Concentration Stocks The interest rate is a major determinant of the direction of the stock market. A stock represents ownership (equity) in a corporation. Stocks are issued to potential investors by different companies who are trying to raise capital (money) for investment purposes.
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TTU – Personal Finance Concentration Investment Bankers In most cases, Investment Bankers (such as Goldman Sachs and Salomon Brothers) act as middlemen on behalf of investors and corporations. The investment banker assists the corporation as an intermediary in the buying and selling of securities in an attempt to raise capital.
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TTU – Personal Finance Concentration Individual Investors Individual investors can purchase stocks in three ways: Full Service Brokerage Discount Brokerage E-trade
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TTU – Personal Finance Concentration Portfolio and Investment Management A portfolio is the number of different stocks held by an individual or a club. The risk determines the return. Risk (probability of default) is assessed using the debt-to-equity ratio as compared to the industry average, the coverage ratio (the ability of the company to make interest payments), and with general cash flow analysis.
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TTU – Personal Finance Concentration Bonds A bond is an interest-bearing debt instrument that promises to pay the bondholder interest payments over the life of the loan provided there is no call-provision, and to repay the face (par) value, at maturity. The quality and the risk of the bond are rated by Moody’s Investors Service and Standard and Poor’s Corporation. The two main types of bonds issued are government bonds and corporate bonds. Government bonds are issued by the Federal government, States, and municipalities and are usually zero-coupon bonds. These bonds have low yields, low risk, and are attractive because they can provide a tax shelter for investors in the high income brackets. Bonds issued by corporations provide higher returns based on their risks. The higher the risk, the higher the return. Bonds that are traded above par value are regarded as premium bonds, and those that are traded below par value are regarded as discount bonds.
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TTU – Personal Finance Concentration Bond Valuation Bonds are issued in three ways: at face value, which is the amount the investor will receive when the bond matures; at a discount below face value; and at a premium above face value. Bond Value = Interest x Present Value Interest Factor of an Annuity (PVIFA
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This note was uploaded on 10/17/2011 for the course PFP 4361 taught by Professor Vickihampton during the Spring '11 term at Texas Tech.

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intro 3 - TTU Personal Finance Concentration PFP 4361...

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