Financial Asset Scavenger Hunt! Savings Bonds, Stocks, and Financial Assets

Last updated 10 months ago

8 questions

We often talk about interest rates associated with borrowing money, and indeed, a nominal interest rate is the cost to borrow money. But what about the good kind of interest rates? The kind you can earn on money you already have and don’t need to spend right away? Because the possibility for earning interest always exists, economists see this kind of interest as the opportunity cost of holding money. Besides, we already learned that money loses value over time due to inflation. So if you hold cash too long without investing it and earning interest, your cash just depreciates as price levels rise. Better to invest!

Interest can be earned on a variety of savings products. Any time you invest your money, you are becoming the lender, and the institution collecting your money becomes the borrower. Therefore, any institution offering financial assets for sale is actually asking you, the consumer, to lend them money. Weird, right? If you decide to invest with that institution, your investment is now a financial asset to you, but a financial liability to the institution. Conversely, if you borrow money from an institution, you have taken on a financial liability (you are now on the hook for that money, plus interest!) and the lending institution has a new financial asset.

Savings Accounts: an account or financial product which stores money for later use and pays interest to the owner at regular intervals. May or may not be time-restricted (time-restricted products cannot be withdrawn until the end of the maturity period without incurring a fine or penalty). Examples: Certificate of Deposit (CD), high-interest savings account, money market account/fund (MMF).

Stocks: a share (portion) of a company bought at a market-determined rate which may go up or down in value. Some stocks pay dividends during profitable periods to reward the loyalty of shareholders and attract new shareholders. Stocks are bought and sold on exchanges (like the New York Stock Exchange). Related products include mutual funds, exchange-traded funds (ETFs) and futures contracts/derivatives.

Non-Liquid Assets: this category includes a broad assortment of assets which may go up or down in value over time; two things they have in common are that their value is subjective and that they have underlying use value (a function or purpose). Examples include real estate, fine art/antiques, jewelry, and natural resources like livestock or coal. They are non-liquid because you have to go through many time-consuming steps to convert them to cash usable for purchases.

Bonds: a bond is a type of short- or long-term savings asset in which the bond issuer (a government, bank, or corporation) borrows money from the bond buyer at a fixed interest rate. Interest payments are made to the bond owner at regular intervals. Once the agreed-upon time period has elapsed (the bond has matured), the bond issuer pays back the face value of the bond. For example, if you buy a $1,000 bond with a one-year maturity period, you earn interest for one year, and then at the end of the year, the bond issuer repays your initial $1,000 investment. The interest you earned is your rate of return, or profit, from the investment.

Please navigate to the linked site. Use the site to help you in answering these questions.

When it comes to government securities, here’s a note about maturity: I’m available in yearly terms of 2, 5, 7, 10 and 3! I am a:_______ 

Afraid of commitment? Just trying to invest-and-chill? These short-term securities are sure to thrill! Invest in me, I’m a _______ !

Want your money to double (that’s a guarantee)? Save your cash with me and you’ll shout ‘Yippee!’ I am a savings bond type_______ .

Oh no, the Fed raised interest rates! That old bond you bought last year now doesn’t seem so great. That’s okay, it’s not too late! You can sell that old bond before maturity, because treasury bonds are a type of _______  _______ security!

Consumer prices, what a state! If inflation rises, your cash will depreciate. Protect your cash and keep it strong by saving with a changing-interest-rate _______ -bond!

Interest rates go down, inflation’s cooling, and now your grown kids need some schooling! Those bonds you bought 8 years ago (when interest rates were not so low) still have several more years to go. How to set those savings free, to cash them in for your kids’ degrees? You can sell those bonds with no _______, after _______ year, that's just so easy!

Looking to make a safe return on all the extra money you earn? Head over to this nice website and buy some bonds on auction night! The next auction date for 19-Year 11-Month 4-1/2% Bonds is _______ . (Enter: MM/DD/YYYY)

Why are bonds considered safe? Because of the fixed interest rates! But when is interest paid to me? For most bonds and securities, your interest comes _______ -annually!