Agenda Warren Buffet’s Billion Challenge Test #1 Returned Personal Finance

StocksLoans / Credit cards

Chapter 34 Highlights HOMEWORK

Read Chapter 6 Questions 1, 6 Problems 4 (not c), 5

Warren’s $1,000,000,000 challenge

http://abcnews.go.com/Sports/warren-buffett-backs-billion-dollar-march-madness-challenge/story?id=21615743

What is the current value of forty $25 million annual payments if inflation is 3%

Net Present Value

Current Value of Future Equal Cashflows

NPV = R x (1 – (1 / 1 + i)n) / i

R - cash received each periodi - inflation rate,n - number of periods

PayoutNPV = (1 – (1 / 1 + i)n) / i

NPV = $25M x (1 – (1 / 1 + .03)40) / .03

= $25M x (1 – (1/3.26)) / .03

= $25M x (1-.3067) / .03

= $25M x .6933 /.03

= $25M x 23.11

$577,750,000*

* About half of the billion advertised. Highlights the corrosive effect of even slight (3%) inflation

Test #1 Returned

Stocks

What is a stock? Stock Charts Why invest in stocks?

Stocks

What is a stock?

Partial ownership (a share, get it?) of a company

Gives you • Claim on earnings (dividend)• Right to sell the share (the asset)• Voting rights

Stocks

Stock Charts

Bigcharts.com

Stocks

Why invest in stocks?

High returns vs. other assetsLiquid (you can sell easily)

So how do I buy stocks?

Looks hard but even a baby can do it!

http://search.yahoo.com/search?p=etrade+baby+buys+stcosk&ei=UTF-8&fr=moz35

Why buy stocks?

And save for retirement!

https://www.youtube.com/watch?v=pa1ejCoJiWk

THREE MINUTE BREAK

Stock Indexes

Collection of stocks Barometer of stock market in general Most Common:

Dow Jones S&P 500 NASDAQ

Dow Jones most common of theseIt’s what they’re talking about when

they say “The stock market is up 50 points”

Loans and Credit CardsO wait! A Credit Card is a loan!

Loans for lots of things

Auto, College, House (mortgage), Boat, whatever.

Debit card vs. Credit Card

Highlights of Chapter 34

The most powerful force in the universe is compound interest.

Al Einstein

Highlights of Chapter 34

Risk and Return

High Return means high risk

If it sounds too good to be true, it is.

There’s a sucker born every minute.P.T. Barnum

HOMEWORK

Read Chapter 6 Questions 1, 6 Problems 4 (not c), 5