Time Required: 15 minutes
Investing Tips
LE SSO N 18 : ST U DENT AC TIVIT Y S H EE T 1
Investment Strategy Definition Risk Pros Cons
Bonds A type of loan Often lower risk, - Usually provides - H istorically lower
in which you are but risk varies more stability than returns than stocks
the lender. You depending on 1) the stocks -C ashing in before
loan money to the ability of the issuer - Higher interest
maturity date could
government or a to repay the loan rate than a savings
corporation with a and 2) interest rate account result in a loss of
set interest rate and opportunity costs principal
maturity date
Mutual Funds A fund managed Risk varies - Diversified - Return isn’t
by a company that depending on type of - You can select guaranteed
includes a portfolio mutual fund different risk levels - Can be subject
of stocks or bonds to expensive
management fees
Stocks When buying a Different levels of - Potential for higher - The market goes up
stock, you buy risk—some can be returns over the and down regularly,
partial ownership of very risky, but all long-term making it a volatile
a company stocks are subject to investment
ups and downs of the - Requires a long-
market term investment to
get the best return
- N o guarantee
for additional
money above your
investment (called
the return) and
you may lose your
principal, too
STUDENT ACTIVITY: INVESTING TIPS | 1
Time Required: 15 minutes
What’s My Interest?
LE SSO N 18 : ST U DENT AC TIVIT Y S H EE T 2
If you could earn $100 or $10 for doing the same job, which would you take? Chances
are, you’d take the $100. While that seems like an easy choice, understanding how you
can earn $100 versus $10 when investing money means mastering interest and rate of
return. Learn how different rates, interest types and investment strategies can impact and
maximize your earnings by completing the table and questions below.
How to Calculate Simple Interest: How to Calculate Compound Interest:
A = P(1 + rt) A=P(1+r/n)^nt
A= Amount A= Amount
P= Principal P= Principal
r= Interest rate (decimal) r= Interest rate (decimal)
t= Time (years) n= Number of times interest is compounded per year
Simple Interest/Rate of Return Example: t= Time (years)
Imagine you have $100 and plan to put it in the bank Compound Interest/Rate of Return Example:
for 6 years with a 6% interest rate, calculated as Imagine the same scenario ($100, interest rate
.06%. Here’s what the calculation would look like: calculated as .06% for 6 years), but this time
100(1+.06x6) = $136 interest will be compounded annually. Here’s how
your money grows:
The interest is $36. If you invested $100, you would
have $136 after 6 years. A = 100(1+ .06/6) to the power of 1 x 6
A= 100(1.06)^6
A= 100 x 1.4185
A= $141.85
•T
o determine the compound interest quickly, try
100 x (1+.06)6. Your answer is still $141.85!
Interest or Interest or
Strategy Principal Interest Rate Time Total Value
Return Type Return Earned
Stock $10,000 3% 10 years Compound
Mutual Fund
(portfolio
$1,000 7% 20 years Compound
of stocks &
bonds)
Bond $100 5% 30 years Simple
Stock $700 10 % 1 year Compound
Bond $10,000 3% 10 years Simple
Continued on the next page.
STUDENT ACTIVITY: WHAT’S MY INTEREST? | 2
What’s My Interest?
LE SSO N 18 : ST U DENT AC TIVIT Y S H EE T 2
Investment Challenge
1. John receives $1,000 as a graduation gift from his grandparents. Rather than spend it, he decides to invest it in a
two-year bond that earns 3% simple interest. John doesn’t need access to the money right away because he wants to
save it for when he’s ready to buy a home in about 10 years. Is the bond a wise investment for John? Why or why not?
What other investment options does John have?
2. If you had the choice between investing $1,000 in a mutual fund that earns 7.5% compound interest or a bond that
earns simple interest at 7.5%, which would you prefer and why?
STUDENT ACTIVITY: WHAT’S MY INTEREST? | 3
