INVESTMENT ALTERNATIVES
MUTUAL FUNDS
$ type of investment where people pool their money
together to buy stocks, bonds, and other assets
$ mutual funds are usually managed by an investment company
that charges a fee (or they can be managed by a financial institution)
REGISTERED RETIREMENT SAVINGS PLAN (RRSP)
$ a series of small, regular investments that is set up to provide income after
retirement
$ money can be put into an RRSP and a deduction can then be claimed on your
income tax return in that year
$ contributions to an RRSP accumulate interest that is tax free
$ when the money is taken out of the RRSP, then it gets taxed as income
GUARANTEED INVESTMENT CERTIFICATE (GIC)
$ a type of investment sold to individuals by banks or trust companies
$ GICs pay interest at a fixed rate and cannot be cashed before a specified date
$ GICs can be purchased for a term that suits individual need
ex. 30 days, 60 days, 1 year, 2 years, etc.
Example 
A One-Time Investment
A mutual fund has an average annual rate of return of 12.45%. The investment
company charges 2% per year as a fee for managing the account. Suppose $1000 is
invested for three years. Calculate the approximate value of the investment, assuming
annual compounding.
Manually
A=
P=
i=
n=
Unit 6 Lesson 2
TVM Solver
N=
______
I=
______
PV=
______
PMT =
______
FV =
______
P/Y=
______
C/Y =
______
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Example 
An Investment that Decreases in Value
Investing often carries an element of risk. Some investments increase in value while
others decrease in value. A mutual fund has an average annual rate of return of
–5.29%. If the investment company’s fees for managing the account are 2% per year,
calculate the approximate value of a $1000 investment after two years, assuming
annual compounding.
Manually
A=
P=
i=
n=
Example 
TVM Solver
N=
______
I=
______
PV=
______
PMT =
______
FV =
______
P/Y=
______
C/Y =
______
Regular Investment (Annuity)
Barney started an RRSP by investing $200 per month from age 16 until his retirement
at age 65. If the investment averaged a 7% annual rate of return, compounded
monthly, determine the amount of money Barney received upon retirement.
TVM Solver
These must
be in the
same unit
of time!!
N= number of payments
_______
I = interest (percent)
_______
PV= starting value of investment
_______
PMT= value of each payment
_______
FV= future value of investment
_______
P/Y = number of payments per year
_______
C/Y= number of compounding periods
_______
CONCLUSIONS:
All investments carry some level of risk. Generally, the greater the
risk, the greater the potential return (or loss). Some investments
increase in value while others lose value.
One way to accumulate wealth is to invest regularly over a long period
Of time. This takes advantage of the power of compound interest!
Unit 6 Lesson 2
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