Wednesday, June 11, 2008
Why is the economy so bad?
The word recession is rolling off everyone's tongue as our economy makes its slow decline. There are several factors that have contributed to the current state of the economy. First and foremost is our budget for the war in Iraq. By extending our time overseas, we have drastically increased our expenses. In fact, George Bush has spent almost one hundred sixty six billion dollars on the war on terror. As we spend money to "fix" a country that doesn't need our help, we risk leaving our country on shaky economic ground. The second reason is that of our balance of trade. Our country continues to export far more than we import, leaving our country in a serious trade deficit. The third reason concerns the real estate market. Many cannot afford to pay back their loans and so are faced with foreclosures. Interests rates are through the roof and the inflation rates have left 5.5% of our nation unemployed.
Thursday, April 3, 2008
The story of the Fed and the Market.
The DOW skyrocketed up last month! why?
The Federal Reserve, the bank of banks, attempted to strengthen the economy during the recession on March 18th. For the sixth time in six months, they shortened federal fund rates by three quarters to a whopping 2.25% for loans. The economy expects to see future cuts in the works.
Although this marks the largest cut in decades, the magnitude of the recession calls for a larger cut.
The Federal Reserve, the bank of banks, attempted to strengthen the economy during the recession on March 18th. For the sixth time in six months, they shortened federal fund rates by three quarters to a whopping 2.25% for loans. The economy expects to see future cuts in the works.
Although this marks the largest cut in decades, the magnitude of the recession calls for a larger cut.
Monday, March 17, 2008
Compound Interest and the Rule of 72
Explain, in your own words the concept of 'compound interest' and 'the rule of 72'. Use examples.
When banks deal in money, they always factor in interest. They give you interest for holding your money and they charge interest when you borrow their money. Compound interest is the when they add interest to an already growing amount of money. For example, lets say you deposit $100 and your account gives you 10% interest every year, or annually. After the first year, you can expect to see $110 dollars now that interest has been added to your balance, or principal. Next year, you would have $121 dollars. Instead of adding interest (10%) to your initial amount of money ($100), the bank calculates interest on your new balance ($110). This way, you earn interest on an already building interest. And that, is how compound interest works.
Compound interest can be be calculated annually or even quarterly and even hourly. When you deal in money, always remember to note interest rate and the frequency of the compounding.
The Rule of 72
This rule is used to estimate the time it takes for an investment to double in value of halving time.
the rule of 72, the rule of 71, the rule of 70 and the rule of 69 are used based on the rate and compounding period of the money invested.
The chart below (courtesy of genxfinance.com) is an illustration of the rule of 72.
Also using the Compound Interest Calculator - find out how much money you would have if you saved $1 per day ($365 per year) from age 18 to 65 (retirement age). Use 8% interest in your calculation; which is about how much the overall US stock market goes up each year.
Current Principal - $365
Annual Addition - $365
Years to grow - 47 Years
Interest Rate - 8%
Compound Interest ONE time annually
Future Value (from age 18 to 65) - $192,122.92
When banks deal in money, they always factor in interest. They give you interest for holding your money and they charge interest when you borrow their money. Compound interest is the when they add interest to an already growing amount of money. For example, lets say you deposit $100 and your account gives you 10% interest every year, or annually. After the first year, you can expect to see $110 dollars now that interest has been added to your balance, or principal. Next year, you would have $121 dollars. Instead of adding interest (10%) to your initial amount of money ($100), the bank calculates interest on your new balance ($110). This way, you earn interest on an already building interest. And that, is how compound interest works.
Compound interest can be be calculated annually or even quarterly and even hourly. When you deal in money, always remember to note interest rate and the frequency of the compounding.
The Rule of 72
This rule is used to estimate the time it takes for an investment to double in value of halving time.
the rule of 72, the rule of 71, the rule of 70 and the rule of 69 are used based on the rate and compounding period of the money invested.
The chart below (courtesy of genxfinance.com) is an illustration of the rule of 72.
Also using the Compound Interest Calculator - find out how much money you would have if you saved $1 per day ($365 per year) from age 18 to 65 (retirement age). Use 8% interest in your calculation; which is about how much the overall US stock market goes up each year.
Current Principal - $365
Annual Addition - $365
Years to grow - 47 Years
Interest Rate - 8%
Compound Interest ONE time annually
Future Value (from age 18 to 65) - $192,122.92
Friday, February 15, 2008
US Trade Deficit
Explain what the US Trade Deficit is. Why did it go down in December 2007? What does the value of the US dollar have to do with the trade deficit falling? Why do you think that a large trade deficit is bad for the economy? In other words: why is it bad to import more goods than you export?
The U.S. trade deficit sounds like a difficult term to grasp, but it really isn't. When a nation exports and imports goods equally, their trading is balanced. The reason why the word "deficit" follows U.S. trading is because we import goods far more than we export. We would have a surplus if we began exporting more goods than we imported. Simple enough?
Recently, the US has faced a giant deficit when imports began exceeding export by nearly 58 billion dollars! In Dec. of 2007, we exported $144 billion dollars in goods and imported 203 billion dollars in goods! If you can't do the math, that's a 59 billion dollar difference. As a result, the value of the US dollar is falling and foreign buyers are now interested in purchasing more of America's cheap products. This sudden surge is responsible for the increase of expots of US goods overseas.
Naturally, a trade deficit has negative impacts. It would be best for a country to always export more than they import, causing the public to stamp surplus in our trading markets. And of course, surplus is a nice word.
The U.S. trade deficit sounds like a difficult term to grasp, but it really isn't. When a nation exports and imports goods equally, their trading is balanced. The reason why the word "deficit" follows U.S. trading is because we import goods far more than we export. We would have a surplus if we began exporting more goods than we imported. Simple enough?
Recently, the US has faced a giant deficit when imports began exceeding export by nearly 58 billion dollars! In Dec. of 2007, we exported $144 billion dollars in goods and imported 203 billion dollars in goods! If you can't do the math, that's a 59 billion dollar difference. As a result, the value of the US dollar is falling and foreign buyers are now interested in purchasing more of America's cheap products. This sudden surge is responsible for the increase of expots of US goods overseas.
Naturally, a trade deficit has negative impacts. It would be best for a country to always export more than they import, causing the public to stamp surplus in our trading markets. And of course, surplus is a nice word.
Thursday, February 14, 2008
Opportunity Costs
In your own words, explain what economists mean when they talk about opportunity costs. What are opportunity costs? Give some examples. And give some examples from your own life.
Every choice is an opportunity cost: if you choose one alternative, you'll lost out on another. An economist would throw you the definition: "Opportunity cost is the loss of potential gain from the best alternative to any choice."
If I should go to college after high school, I would be losing $20,000 to tuition. On the otherhand, I can spend those four years working to make $20,000. Likewise, earning a bachelors degree provides the average student with $590,000 in future earnings. There are plenty of alternatives, but the opportunity cost is what we pay to get what we want in exchange for another.
Every choice is an opportunity cost: if you choose one alternative, you'll lost out on another. An economist would throw you the definition: "Opportunity cost is the loss of potential gain from the best alternative to any choice."
If I should go to college after high school, I would be losing $20,000 to tuition. On the otherhand, I can spend those four years working to make $20,000. Likewise, earning a bachelors degree provides the average student with $590,000 in future earnings. There are plenty of alternatives, but the opportunity cost is what we pay to get what we want in exchange for another.
Monday, February 11, 2008
My Investment Strategy
My initial investments were taken from MSN Money's Top Rated Stock Lists. At first, I chose the companies with the catchiest names, naturally. On the second day of the stock market contest, I saw Pedro's portfolio skyrocket, so I basically copied his investment strategy and bought stocks from First Solar. As our portfolio value increased, I saw everyone else jumping on the First Solar (FSLR) bandwagon until all its investors raced their way to the top of the ranking chart.
And so, my strategy from here on out is to invest in five great companies (some blue chip, some not) and stray away from the investments of my classmates. Hopefully, my stocks will go up slowly in value as their portfolios rise and fall together (because of all their similar investments).
And so, my strategy from here on out is to invest in five great companies (some blue chip, some not) and stray away from the investments of my classmates. Hopefully, my stocks will go up slowly in value as their portfolios rise and fall together (because of all their similar investments).
Tuesday, February 5, 2008
Intro. to the Stock Market
1. What exactly is a stock and why do companies sell stock in the first place?
A piece of stock represents partial ownership of a company and so, when someone invests in a certain company, they are buying part of the company. Companies sell stock in order to build interest on invested amounts. With all the money from investors, a company can expand and increase profits. The increased profit benefits all the stockholders who are also partial owners of the company.
2. What is the difference between a public and a private company?
A private company only sells stock amongst its employees, while a public company sells stock to investors all over the world.
3. What is the Dow Jones Industrial Average?
It is the oldest continuing US market index, created to gauge the performance of the industrial component of America's stock markets. The average is made up of 30 of the largest and most widely held public companies in the US.
4. What is a blue chip stock?
The term "blue chip" refers to a stock that is in excellent financial shape and firmly established as a leader in the market. Often referred to as "bellwether issues", these blue chip stocks generally offer dividends and are favorably regarded by investors.
5. What is the New York Stock Exchange and the NASDAQ?
The NYSE and Nasdaq are both stock markets, but are very different in the way that they operate. The NYSE is a place where transactions are taken in a physical place, while the Nasdaq market is located on a telecommunications network, where investments are made electronically. While the Nasdaq exchanges in the dealer's market, wherein investors are not buying and selling from each other but from a dealer, the NYSE exchanges in an auction market, where individuals are typically buying and selling between one another as in an auction. The Nasdaq is also known as a high-tech market, attracting investors within the Internet and electronics. The NYSE is seem as a more well established market that includes many of the blue chip firms and industries.
6. What is a mutual fund?
A mutual fund pools money from investors in the form of cash, bonds and real estate and then the mutual fund company hires money managers to invest this pool of money. In buying a mutual fund, investors will share the profits and losses of the investment portfolio with other investors in the same pool. This mutual fund allows others to invest for you, while spreading out the investment risk (diversification).
7. What are some of the biggest companies on the stock market, how much is their stock?
General Motors - GM - $26.30
Google - GOOG - $504.14
Apple - AAPL - $122.14
Microsoft - MSFT - $28.12
General Electric - GE - $34.23
8. What is the PE ratio of a stock?
It is an indicator for how much a stock is worth. The PE ratio is the price of the stock divided by the earnings per share.
9. What is a stock dividend?
Before I can explain the purpose of a stock dividend, i must first explain what a dividend is. A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current profits. This dividend can take the form of a stock dividend, which is paid as additional shares of stock rather than as cash.
A piece of stock represents partial ownership of a company and so, when someone invests in a certain company, they are buying part of the company. Companies sell stock in order to build interest on invested amounts. With all the money from investors, a company can expand and increase profits. The increased profit benefits all the stockholders who are also partial owners of the company.
2. What is the difference between a public and a private company?
A private company only sells stock amongst its employees, while a public company sells stock to investors all over the world.
3. What is the Dow Jones Industrial Average?
It is the oldest continuing US market index, created to gauge the performance of the industrial component of America's stock markets. The average is made up of 30 of the largest and most widely held public companies in the US.
4. What is a blue chip stock?
The term "blue chip" refers to a stock that is in excellent financial shape and firmly established as a leader in the market. Often referred to as "bellwether issues", these blue chip stocks generally offer dividends and are favorably regarded by investors.
5. What is the New York Stock Exchange and the NASDAQ?
The NYSE and Nasdaq are both stock markets, but are very different in the way that they operate. The NYSE is a place where transactions are taken in a physical place, while the Nasdaq market is located on a telecommunications network, where investments are made electronically. While the Nasdaq exchanges in the dealer's market, wherein investors are not buying and selling from each other but from a dealer, the NYSE exchanges in an auction market, where individuals are typically buying and selling between one another as in an auction. The Nasdaq is also known as a high-tech market, attracting investors within the Internet and electronics. The NYSE is seem as a more well established market that includes many of the blue chip firms and industries.
6. What is a mutual fund?
A mutual fund pools money from investors in the form of cash, bonds and real estate and then the mutual fund company hires money managers to invest this pool of money. In buying a mutual fund, investors will share the profits and losses of the investment portfolio with other investors in the same pool. This mutual fund allows others to invest for you, while spreading out the investment risk (diversification).
7. What are some of the biggest companies on the stock market, how much is their stock?
General Motors - GM - $26.30
Google - GOOG - $504.14
Apple - AAPL - $122.14
Microsoft - MSFT - $28.12
General Electric - GE - $34.23
8. What is the PE ratio of a stock?
It is an indicator for how much a stock is worth. The PE ratio is the price of the stock divided by the earnings per share.
9. What is a stock dividend?
Before I can explain the purpose of a stock dividend, i must first explain what a dividend is. A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current profits. This dividend can take the form of a stock dividend, which is paid as additional shares of stock rather than as cash.
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