Chapter 6, Problem 1AA

To determine

To explain:Themethods that can be chosen by a person who wants to save or invest certain amount of inheritance.

Explanation of Solution

When an individual thinks about saving, it is assumed that the funds are kept in any savings account in bank or financial institution on which interest will be earned. If an individual wants to save or invest $10,000 inheritance, there are many methods for saving and investing.

The person can keep the amount in savings account. A savings account is an account where funds can be kept upon which interest can be earned. This account has no maturity date and funds can be withdrawn when needed without any penalty. There is another type of account which is money market deposit account, in which also $10,000 can be kept. This account provides high rate of interest than savings account and access to funds can be made immediately in form of checks.

Another method that can be used by an individual for saving or investing purpose is time deposits. Time deposits are type of saving plan where fund can be deposited for a specific time period. Certificate of deposits are one form of time deposits in which the amount of deposit, its maturity and rate if interest to be paid is stated.

If an individual wants higher amount of return and is ready to bear some risks, then the person can invest $10,000 in some other way. The person can invest the amount in stocks or bonds. Stockholders are owners of stock that derive benefit from stock in two ways, one is dividend and other is selling the stock in a greater amount that what it was purchased. There are some types of bonds in which investment can be made. One is savings bonds; these bonds are issued by the government in form of money that can be borrowed. These can be purchased at half of their face value and this amount increases every 6 months. Money can also be invested in form of mutual funds, these are investment companies that pool the amount in various types of investments like stocks or bonds. Money can also be invested in Treasury Bills. Treasury bills are certificates that are issued by the government of United States in exchange for some amount. The minimum amount in which Treasury Bills can be purchased are $1,000 and these bills mature after 26 weeks.

If a person is confused about savings and investments, a broker can be consulted. A broker is the person which acts as a medium for selling and purchasing stocks and bonds.

Economics Concept Introduction

Introduction:

Saving-When a part of income is set aside so that it can be used later for some purpose, it is termed as saving. Saving made by an individual can be beneficial for the economy as it provides opportunities for further investing or spending.