Question

apply what you know

1. how do inflation and investing affect purchasing power?
2. what is the difference between company risk and industry risk? provide an example of how each affects investments.
3. identify criteria you can use when choosing an investment. which of the criteria is most important to you? why?
4. how might you benefit from joining an investment club?
5. using keywords such as \investment,\ \stock,\ or some others you can think of, search the internet for resources to help you make investing choices. list the names and urls of three websites that you think would help you most. briefly describe the types of investment information available at those sites.
6. consult a financial newspaper or magazine or search the internet to find the current rate for each of the following securities: series ee savings bonds, one - year treasury bills, two - year treasury notes, and thirty - year treasury bonds.
7. conduct online research for information on how the stock market has performed over the last 30 years. what was its high? what was its low? draw a line graph representing the stock market during this time period.

make academic connections

1. math using the rule of 72, compute how long it would take to double your money at the following annual rates of return: (a) 1 percent, (b) 3 percent, (c) 5 percent, (d) 7 percent, (e) 9 percent, (f) 11 percent, and (g) 13 percent. assuming the inflation rate is 5.5 percent in a given year, how do these rates of return meet your needs?
2. research conduct research on a famous person (past or present) who has invested wisely over his or her life, resulting in substantial wealth. consult the persons biography (if available) and other sources, and explain his or her investment strategies. report on your findings.
3. careers assume you would like to work as a broker some day. research the qualifications and skills required. what are the educational requirements? describe the work environment and characteristics of this occupation. what is the average salary? compile your research into a \career profile\ of a broker.
4. economics how would your investment choices be affected if the economy is growing? what if the economy is slowing? consult the economist magazine and find an article about the business cycle. where is the united states at this point in time (recession, recovery, peak, or trough)? explain what that means in terms of investing.
5. history look up a famous work of art, painting, or sculpture. where is it located today? what is its approximate value? why has it gained in value so much over time? what would make a piece of art a good investment?

Explanation:

The Rule of 72 estimates doubling time using $\text{Doubling Time} = \frac{72}{\text{Annual Rate}}$.

Step1: Calculate for 1%

$\frac{72}{1} = 72$ years

Step2: Calculate for 3%

$\frac{72}{3} = 24$ years

Step3: Calculate for 5%

$\frac{72}{5} = 14.4$ years

Step4: Calculate for 7%

$\frac{72}{7} \approx 10.29$ years

Step5: Calculate for 9%

$\frac{72}{9} = 8$ years

Step6: Calculate for 11%

$\frac{72}{11} \approx 6.55$ years

Step7: Calculate for 13%

$\frac{72}{13} \approx 5.54$ years

Step8: Compare with inflation

Inflation = 5.5%. Rates ≥5.5% (5%,7%,9%,11%,13%) beat inflation; 1%,3% do not.

Answer:

(a) 72 years
(b) 24 years
(c) 14.4 years
(d) ~10.29 years
(e) 8 years
(f) ~6.55 years
(g) ~5.54 years
Rates ≥5.5% preserve/promote purchasing power; lower rates do not.