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- Chapter 11: Retirement & Estate Planning
- Chapter 12: Investing
- Chapter 14: The Practice of Investment
- Read information posted in Content and Articles folder.
HOMEWORK:
- Chapter 11: 11.2 #2 (p. 276)
- Chapter 12: 12.3 #4 (p. 305)
- Chapter 14: 14.1 #1 (p. 340)
Chapter 11
1. Do you participate in an employer-sponsored retirement savings plan? If so, what kind of plan is
it, and what do you see as the benefits and drawbacks of participating? If you contribute to your
plan, how did you decide how much to contribute? Could you contribute more? In searching for
your next good job, what kind of retirement plan would you prefer to find in the new employer’s
benefit package, and why?
2. As part of your planning, how can you estimate what you can expect from Social Security as a
contribution to your retirement income? Find this answer by going
to http://www.ssa.gov/retire2. Using the menus at this site, find out your retirement age. How
many credits toward Social Security do you have now? How many do you expect to accumulate
over your working life? Use one of the benefit calculators to find your estimated Social Security
benefit. How much could you receive monthly? Would you be able to live on your Social Security
alone? How much more would you need to save for? What would happen if you continued to work
or went back to work after taking your retirement benefit? What would happen if you took your
benefit before your full retirement age?
Chapter 12
Selecting a security to invest in, such as a stock or fund, requires analyzing its returns. You can
view the annual returns as well as average returns over a five-, ten-, fifteen-, or twenty-year
period. Charts of returns can show the amount of volatility in the short term and over the longer
term. What do you need to know to calculate the annual rate of return for an investment?
Consider that at the beginning of 2010 Ali invests $5,000 in a mutual fund. The fund has a gain in
value of $200, but generates no income. What is the annual percentage rate of return? What do
you need to know to estimate the expected return of an investment in the future? If the fund Ali
invests in has an average fifteen-year annual return of 7 percent, what percentage rate of return
should he expect for 2011? Find the estimated annualized rate of return for a hypothetical
portfolio by using the calculator athttp://www.mymoneyblog.com/estimate-your-portfolios-rateof-return-calculator.html.
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305
2. Try the AARP’s investment return calculator
athttp://www.aarp.org/money/investing/investment_return_calculator/, experimenting with
different figures to solve for a range of situations. Use the information on that page to answer the
following questions. Can the future rate of return on an investment be estimated with any
certainty? Do investments that pay higher rates of return carry higher volatility? Do investments
that pay higher rates of return carry higher risk? What accounts for differences between the
actual return and the expected return on an investment?
3. The standard deviation on the rate of return on an investment is a measure of its volatility, or
risk. What would a standard deviation of zero mean? What would a standard deviation of 10
percent mean?
4. What kinds of risk are included in investment risk? Go online to survey current or recent financial
news. Find and present a specific example of the impact of each type of investment risk. In each
case, how did the type of risk affect investment performance?
12.4 Diversification: Return with Less Risk
Chapter141. What four measures are the most important indicators of the health of the economy? What are
the other leading economic indicators? Go to a financial news source to find out the status of all
the economic indicators at this time. Make note of your findings and the date for purposes of
comparison. How does the information inform you as an investor? Discuss with classmates the
implications of the economic indicators for investing. For example, read the results of the most
recent Consumer Confidence Survey athttp://www.conference-
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341
board.org/economics/ConsumerConfidence.cfm. How might these survey results inform you as
an investor?
2. Read an article summarizing the index of leading economic indicators for May 2009
at http://www.bloomberg.com/apps/news?pid=20601103&sid=aNHH_lMhARc4. How might an
investor have used the reported information in making investment decisions? Survey the indexes
listed in Figure 14.2 “Examples of Security Indexes”. What role might each index play in choosing
assets for a portfolio?
3. Visit the SEC’s EDGAR site at http://www.sec.gov/edgar.shtml. Take the tutorial to familiarize
yourself with how the site works and then click on “Search for Company Filings.” Input the name
of a company with publicly traded stock of interest to you. Then click on the company’s most
recent annual report it filed with the SEC. Read the annual report in its entirety, including parts
you don’t understand. Jot down your questions as you read as if you are thinking of buying shares
in that company. What information encourages you in that decision? What information raises
questions or concerns? Go to the company’s Web site and check its online documents, news,
updates, and the current status of its stock. Are you further encouraged? Why or why not? Where
can you go next to get data and commentary about the company as an investment opportunity?
4. Survey the news sources listed in Figure 14.4 “Sample of Financial News Sources” and number
the sites to rank them in order of their usefulness to you at this time. Record in your personal
finance journal or My Notes your top five sources of financial information and why you chose
them.
5. Have you ever mistaken a press release or a blog for hard news when looking for information
online? Read the interviews with journalists, bloggers, and others debating the reliability and
accuracy of news disseminated through the Internet
athttp://www.pbs.org/wgbh/pages/frontline/newswar/tags/reliability.html. This PBS Frontline
special delves into the questions of the credibility and reliability of news information, including
financial news and blogs that we access online. Commentators include Ted Koppel, Larry Kramer,
Eric Schmidt, Craig Newmark, and others. Discuss with classmates the positions taken in this
debate. In My Notes or your personal finance journal, write an essay expressing your own
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