Risky Business Securities and Investments Finance Lesson Plan
Performance Objective Students will understand and analyze the relationship between risk and return. Specific Objective  Identify the components of the risk pyramid  Apply the concept of risk when selecting investments  Understand the different types of risk that can affect investing decisions Terms  Risk‐the potential for loss  Return‐the actual gain or loss of an investment  Risk pyramid‐a visual way of representing how assets are allocated (grouped) according to how risky they are  Risk tolerance‐the degree of the amount of uncertainty that a person can take; it depends a great deal upon life events and stages  Financial risk‐the potential for loss of a financial investment  Interest rate risk‐usually affects fixed‐rate securities like bonds; the possibility that the investment will lose value if interest rates rise and your investment has a lower fixed rate  Business risk‐possibility that the company itself (that sells stock or issues bonds) may go out of business  Market risk‐a risk that can affect the market as a whole as opposed to a specific investment; it can affect mutual funds more because they consist of a group of investments pooled together  Political risk‐the risk of government events that can affect the value of securities  Exchange rate risk‐the risk of the value of currencies here or in other countries changing which can affect the value of the securities as well  Liquidity risk‐the possibility that your investment will not be able to be converted to cash when you need it  Inflation risk‐the possibility that the rate of inflation can be higher than your investment’s rate of return  Diversification‐spreading out your money into different types of investments; it is designed to protect against risk  Portfolio‐a combination or group of different types of securities; ideally protects against risk as many investments can be safer and absorb more ups and downs than only one investment  Savings account‐a depository account held at a financial institution that may pay interest; usually there is a fee for writing checks or withdrawing money  Money market account‐similar to savings accounts but usually require a higher minimum balance in exchange for a higher interest rate Copyright © Texas Education Agency, 2013. All rights reserved. 1 
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Certificate of deposit‐an interest‐bearing account that has a specific maturity date; withdrawals can only be made with a penalty Stock‐represents a share of ownership in a corporation; companies issue stock to raise money Bonds‐an investor can buy a bond, which is issued by a government entity or corporation as a loan where the issuer agrees to pay the money back with interest Commodities‐also referred to as “futures”; goods that can be traded on exchanges such as gold, oil, and natural gas Mutual funds‐a portfolio of investments managed by a professional; shares can be purchased individually Liquidity‐how easily an investment can be converted to cash Time When taught as written, this lesson should take approximately 4‐5 class periods to complete. Preparation
TEKS Correlations: This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result in the elimination of any or all of the TEKS listed. 130.164 (c) Knowledge and Skills (2) The student maintains, monitors, controls and plans the use of financial resources in order to perform key duties in the securities and investments industry. The student describes investment analysis and selection processes. The student is expected to: (A) describe types of investment objectives; (B) consider the nature of investment risk; (C) express the nature of diversification strategies; (D) understand factors to consider when selecting investments. Interdisciplinary Correlations: English‐English I  110.31(b)(1) … understand new vocabulary and use it when reading and writing;  110.31(b)(11)(B) … analyze factual, quantitative, or technical data presented in multiple graphical sources;  110.31(b)(21)(B) …organize information gathered from multiple sources to create a variety of graphics and forms (e.g., notes, learning logs, etc.);  110.31(b)(23)(C) …use graphics and illustrations to help explain concepts where appropriate. Math‐Algebra I  111.32(b)(1)(E). … interpret and make decisions, predictions, and critical judgments from functional relationships. Copyright © Texas Education Agency, 2013. All rights reserved. 2 Social Studies‐World Geography  113.34(c)(20)(A) … describe the impact of new technologies, new markets, and revised perceptions of resources. Occupational Correlation (O*Net – www.onetonline.org/): Job Title: Risk Management Specialists O*Net Number: 13‐2099.02 Reported Job Titles: Risk Management Director, Chief Risk Officer, Global Risk Management Director Tasks: 
Recommend ways to control or reduce risk. 
Identify key risks and mitigating factors of potential investments, such as asset types and values, legal and ownership structures, professional reputations, customer bases, or industry segments. 
Develop or implement risk‐assessment models or methodologies. Skills: Critical Thinking, Systems Evaluation, Judgment and Decision Making, Complex Problem Solving Accommodations for Learning Differences It is important that lessons accommodate the needs of every learner. These lessons may be modified to accommodate your students with learning differences by referring to the files found on the Special Populations page of this website. Preparation  Prepare materials and websites prior to the start of the lesson.  Distribute pre‐assembled (locate directions online) flipbooks or materials for students to make their own flipbook. References 
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Rutgers, The State University of New Jersey. (2013). Investment Risk Tolerance Quiz. Retrieved from http://njaes.rutgers.edu/money/riskquiz/ Arizona Corporation Commission. (2012). Basics of Saving and Investing 2020. Retrieved from http://www.azinvestor.gov/Youth_and_Educators_Teaching_Guides_and_Videos.asp Investing in Your Future, Southwestern Publishing U.S. Census Bureau (n.d.) Retrieved from www.census.gov/ University of Texas at San Antonio, The. (2012). Rowdy Cents. Retrieved from http://utsa.edu/moneymatters/why_this_site.html U.S. Securities and Exchange Commission. (2005). Retrieved from http://www.sec.gov/investor/pubs/toolkit.htm Bureau of Public Debt, The. (2012). Retrieved from http://www.treasurydirect.gov/kids/games/games.htm U.S. Currency Education Program. (n.d.). Retrieved from http://www.newmoney.gov/training/default.htm Instructional Aids 
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Lesson Presentation Instructor Computer/Projection Unit Copyright © Texas Education Agency, 2013. All rights reserved. 3 
Online Websites Introduction
The main purposes of this lesson are to help students understand:  The importance of understanding the risk involved when an investor is trying to make his money work for him in the future  Their own tolerance for risk and what they can do to protect themselves from risk in the future Ask students if they received $1,000 right now whether they would put it in the bank, spend it, invest in stocks, or buy lottery tickets. Ask students if they are familiar with what a risk pyramid is or why it may be of value to investors. Copyright © Texas Education Agency, 2013. All rights reserved. 4 Outline
I. Important Risk Questions A. What is risk? ‐ possibility of loss B. How is risk measured? ‐ in dollars or percentages C. How do I avoid risk? ‐ no guarantees but diversification can reduce it II. Calculating Investment Return‐
see examples in presentation III. Risk/Return Relationship A. Direct relationship B. As risk increases, return increases C. The lower the risk, the lower the return IV. Risk Tolerance A. Risk averse‐avoid risk if possible B. Risk seeking‐look for risky investments C. Neutral‐risk not considered V. Types of Risk A. Liquidity B. Market C. Business D. Inflation Ask students what would happen if they did not have insurance on their car and they had an accident. Ask them what could happen if they broken a bone and had to go to the hospital and they did not have insurance. Risk affects every aspect of our lives and many choices we make. Risk also affects our financial decisions. Although there is no insurance to protect us against financial riskknowledge of our goals and the risk level of certain types of investments can protect us, to some extent. Review the risk pyramid in detail with students using the Basics of Saving and Investing 2020 website as mentioned in the Guided Practice section. Using the presentation, discuss the various stages of life of how some investors generally feel about risk at these different stages. Explain also, using the Multiple Intelligences Guide Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2013. All rights reserved. 5 Verbal/Linguistic Visual/Spatial VI. E. Interest Rate F. Exchange Rate G. Political Basics of Saving and Investing 2020 website how ‘when’ they begin investing is as important, if not more important, than ‘how much’ they save or invest. After explaining the definitions of the most common investments using the pyramid, place either a poster of each investment (with the definition to remind students) or sticky flip‐chart paper on the walls around the room. Ask students to stand by the investment they would choose if they were given $100 to invest. Then ask students if they were given $10,000 to stand by their preferable investment. Will students stand in the same place that they did for the $100? Some students may ask if they can be in two places at once. This is a good time to introduce the concept of diversification and its role in reducing risk. Be sure to relate the different risk levels of securities to the different life stages and risk tolerance levels of investors. Show students how to look at bank websites for interest rates or searching large‐, mid‐, and small‐cap stocks Diversification A. Investing in several types of securities as opposed to only a single investment B. Also called asset allocation C. Theory that pooling of assets can be safer than only one asset D. Example‐investing in a mutual fund as opposed to a single company’s stock VII. Risk Pyramid A. Displays investments of different asset types B. Shows degree of risk C. Less risky at the bottom D. More risky at the to VIII. Lower‐Risk Investments A. U.S. Savings Bonds B. Checking/savings C. Certificates of Deposit D. Money Market Accounts E. Diversified mutual funds F. High credit‐rating corporate bonds IX. Medium‐Risk Investments A. Preferred stock B. High Quality stocks C. Large‐cap stocks D. Growth stocks Multiple Intelligences Guide Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2013. All rights reserved. 6 Verbal/Linguistic Visual/Spatial X. High‐Risk Investments A. Small‐ and mid‐cap stocks B. Mutual funds in the same industry C. Futures, commodities, collectibles D. Penny stocks Look at the three or five‐year charts for some of these stocks and see if they appear more stable or volatile. Copyright © Texas Education Agency, 2013. All rights reserved. 7 Guided Practice 
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Application
Ask students: if a burglar were to break into a house, where is the first place he would look for money or valuables? They would probably say “in a drawer, closet, or under a mattress”. How safe is the money in those locations? Explain the levels of risk in saving money in a house as opposed to saving it elsewhere such as a bank. Explain the concept of the Risk Pyramid. Hand out blank pyramids to students and have them follow as you complete the pyramid with them, explaining that the bottom of the pyramid represents the least risky investments and the most risky investments are at the top of the pyramid. The pyramid is found in the Basics of Saving and Investing 2020 page 1.18 and 1.19 (blank for students). Independent Practice 
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Have students create a flip book with all of the vocabulary related to this lesson. Ask them to include a visual or examples for each term. Have students complete the Risk Tolerance Quiz located on the Rutgers University website. Record on the board or document camera the students’ results to the quiz to see how tolerant the class is as a whole. Review Summary
These questions can be given in the form of a quiz or as exit tickets over several class periods. Question #1: What is risk? Answer #1: Risk is the possibility of loss of all or part of a financial investment. Question #2: What is the relationship between risk and return? Answer #2: As risk increases, the return increases also. Question #3: Why is risk tolerance important? Answer #3: Knowing the amount of risk you are willing to assume can determine what type of investments you may be willing to make, in addition to knowing that this tolerance may change over your life cycles. Question #4: What is liquidity risk and why is it important? Answer #4: Liquidity risk is the chance that your investment may not be easily converted to cash when you need it. For example, if you need cash for an emergency and you have invested your money in real estate, it may take a while to sell the asset and receive the cash, and the value may also have decreased during the time you held the asset. Question #5: Why do I need to know about a risk pyramid? Answer #5: By knowing about a risk pyramid, someone else has done the general research that can act as a guide to which investments are less risky and may earn lower returns and which are more risky and therefore can earn potentially higher returns. Informal Assessment Evaluation
Any and all of the following can be used as informal assessments :  Completion of the flipbook for vocabulary  Completion of the “Risk Tolerance Quiz” to determine their own level of tolerance Copyright © Texas Education Agency, 2013. All rights reserved. 8 Formal Assessment 
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Risk/Return Line Graph Assignment #1 – Following the example of the risk pyramid students learned about in this lesson, they are to create a line graph showing the direct risk/return relationship between at least five different investments. Axes should be labeled. Your Own Portfolio Assignment #2 – Students will put together their own portfolio using the different types of investments discussed in this lesson. They are to virtually invest $5,000 for a six‐month period and include at least three different investments according to their own level of risk tolerance. For example, if they want safe investments, they can calculate their return using savings account rates, certificate of deposit rates, and money market accounts. They are to specify how much of their $5,000 will go into which investments and determine how much money they will have at the end of six months. Students may display your results in any manner you choose, but it should look professional. Millionaire Quiz Trivia Risk Tolerance Assignment #3 – Give students the attached handout for the Millionaire Quiz Trivia. According to the directions, students are to write in pen, not pencil, and answer trivia questions. As each question is asked, they are to indicate whether or not they will go ‘double or nothing’ (if they are very sure of their answer) on their answer, meaning they can get zero, five, or ten points for each question. Each question is worth five points so if they get one correct, it is five points. If it is incorrect, it is zero points. If they went ‘double or nothing’ and they are right, it is ten points. If it was incorrect, they get zero points. After the ten questions are completed and the students tally their scores, they will write a conclusion regarding their risk tolerance level and if it paid off or not. Extension Enrichment
Interview an investment professional and ask him or her what they advise their clients regarding risk. Obtain any information you can such as brochures or pamphlets and bring them back to class. Provide the class with a short summary of the advisers’ risk recommendations. Copyright © Texas Education Agency, 2013. All rights reserved. 9 Name _______________________________ Date _____________________ Financial Trivia Quiz Directions: Write your answer choice for each of the following ten questions. Use only pen or marker, not pencil. As you answer each question, decide if you feel confident enough with your answer to check the ‘Bonus’ box to potentially earn double points for the question. If you are not positive of your answer choice, do not check the ‘Bonus’ box. 1. Answer _______________ Bonus +10  2. Answer _______________ Bonus +10  3. Answer _______________ Bonus +10  4. Answer _______________ Bonus +10  5. Answer _______________ Bonus +10  6. Answer _______________ Bonus +10  7. Answer _______________ Bonus +10  8. Answer _______________ Bonus +10  9. Answer _______________ Bonus +10  10. Answer _______________ Bonus +10  Total Score _______________ Risk Tolerance Summary: __________________________________________________________________________________________
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__________________________________________________________________________________________ Financial Trivia Quiz Questions and Key 1. What percent of lottery winners file bankruptcy? A. 30% B. 50% C. 70% ** D. 90% 2. What percent of professional athletes file bankruptcy or have money problems? A. 32% B. 20% C. 63% D. 78% ** 3. What is the percentage of American households who live on less than $46,000 per year? A. 10% B. 50% ** C. 30% D. 70% 4. What is the average amount of credit card debt that graduating college students have? A. $1,000 B. $2,000 C. $3,000 D. $4,000 ** 5. What is the age group with the fastest‐growing bankruptcies? A. 18‐25 ** B. 26‐34 C. 35‐44 D. 45‐54 6. Approximately what percent of your income will you need when you retire? A. 50% B. 40% C. 70% ** D. 60% 7. About how much debt does the U. S. currently have? A. $120 million B. $120 billion C. $14 trillion ** Copyright © Texas Education Agency, 2013. All rights reserved. 11 8. How much of the U. S. currency is circulated outside of the U. S.? A. 2/3 ** B. 1/2 C. 1/3 9. What is the most commonly counterfeited bill? A. $1 B. $10 C. $20 D. $1,000 ** 10. Which is the safest place for your money if you have saved money during high school that you plan to use for college starting next year? A. a bank savings account ** B. stocks C. a closet in your bedroom D. bonds Copyright © Texas Education Agency, 2013. All rights reserved. 12 Risky Business Line Graph Assignment #1 Student Name ______________________ CATEGORY 20 15 8 1 Neatness and Attractiveness Exceptionally well Neat and relatively designed, neat, and attractive. attractive. Colors that go well together are used to make the graph more readable. Lines are neatly drawn Appears messy and but the graph appears "thrown together" in a quite plain. hurry. Lines are visibly crooked. Type of Graph Chosen Graph fits the data Graph is adequate and Graph distorts the data Graph seriously well and makes it easy does not distort the somewhat and distorts the data thus to interpret. data, but interpretation of the making interpretation interpretation of the data is somewhat almost impossible. data is somewhat difficult. difficult. Labeling of X axis The X axis has a clear, The X axis has a label. The X axis has a label The X axis is not neat label. which may be inaccurate. Labeling of Y axis The Y axis has a clear, The Y axis has a label. The Y axis has a label The Y axis is not labeled. Content Graph does not display knowledge of topic. neat label. Graph thoroughly displays clear knowledge of topic. which may be inaccurate. Graph adequately Graph is somewhat displays knowledge of incomplete. topic. labeled. Maximum Points Possible: 100 Student Points: __________ Copyright © Texas Education Agency, 2013. All rights reserved. 13 Risky Business Your Own Portfolio Assignment #2 Student Name ______________________ CATEGORY 20 15 8 1‐2 cells have missing 3‐4 missing entries Required Elements All cells contain required data; no missing text entries entries More than 4 cells are missing entries. Appearance Table is exceptionally Table is of adequate professional and neat appearance. in appearance. Table is somewhat unorganized in appearance. Table is messy and not easily readable. Mechanics No misspellings or grammatical errors. 3‐4 misspellings and/or grammatical errors. More than 4 errors in spelling or grammar. Content Covers topic in‐depth. Includes essential Subject knowledge is knowledge about the excellent. topic. Subject knowledge appears to be good. Includes essential Content is minimal OR information about the there are several topic but there are 1‐2 factual errors. factual errors. Attractiveness Makes excellent use of font, color, graphics, effects, etc. to enhance the table. Makes use of font, color, graphics, effects, etc. but occasionally these distract from the table content. 1‐2 misspellings and/or mechanical errors. Makes good use of font, color, graphics, effects, etc. to enhance the table. 1 Maximum Points Possible: 100 Student Points: ___________ Copyright © Texas Education Agency, 2013. All rights reserved. 14 Use of font, color, graphics, effects, etc. but these often distract from the table content. Risky Business Financial Trivia Game Risk Tolerance Assignment #3 Student Name ______________________ CATEGORY 20 15 8 All questions answered 1‐2 questions not More than 2 questions Quiz Answers Few questions not answered; no total answered and no total score provided. score provided. and total score calculated. answered, but total score provided. Risk Tolerance Summary Thorough summary provided. Adequate summary provided. Instructions Instructions for completing assignment were completely followed. Instructions for Assignment completing assignment Instructions not were adequately completely followed followed. Assignment instructions clearly not followed Mechanics No misspellings or grammatical errors. Three or fewer misspellings and/or mechanical errors. Four misspellings and/or grammatical errors. More than 4 errors in spelling or grammar. Content Covers risk tolerance topic in‐depth with details and examples. Subject knowledge is excellent. Includes essential knowledge about the risk tolerance topic. Subject knowledge appears to be good. Includes essential Content is minimal OR information about the there are several topic of risk tolerance factual errors. but there are 1‐2 factual errors. Incomplete summary No summary provided 1 Maximum Points Possible: 100 Student Points: _________ Copyright © Texas Education Agency, 2013. All rights reserved. 15