Chap001.Spring05

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Unformatted text preview: eep your grades up in case you need to go to Keep graduate school graduate 26 U.S. Unemployment Rate Avg. Unemployment 12.00% 10.00% 8.00% Latest = 7.0% 6.00% 4.00% 2.00% 0.00% 00 01 02 03 04 05 06 07 08 09 > 25 years old: No HS = 10.8%, HS = 7.3% Some college = 6.4%, college degree = 3.4% 10 11 12 13 27 Fed Will Keep Interest Rates Low Until Unemployment Falls to 6.5% Latest = 7.8% 28 And Low Rates Remain As Long as CPI <2.5% (2014?) CPI 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 70 75 80 85 90 CPI 95 00 05 10 13 Large U.S. deficits and easy money policies will likely lead to higher inflation (and interest rates) in the long run 29 The “Real Return” on Investments Your “real return” equals the after tax return Your minus inflation rate minus Low Inflation High Inflation Pre­tax return 12% 16% Tax rate @ 25% ( 3%) ( 4%) After tax return * 9% 12% ( 3%) (10%) 6% 2% Less: inflation Real return *After tax return = Pre­tax return x (1 minus tax rate) 30 Every Financial Decision Involves Evaluating Types of Risk Interest-rate risk Effects cost of borrowing and rate of return Personal risk Health, safety, or costs Liquidity risk Higher return may mean Higher less liquidity less 31 Financially Astute Individuals Understand Major Factors That Influence Their Money Global influences Understanding the global economy Understanding and currencies and Economic conditions The recession brought on by the 2008 The financial crisis and subsequent rebound rebound 32 As Well As the Effect of Changing Economic Conditions Consumer pri...
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