Lesson Activity

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Evaluating Savings and Investment Options Based on Rate of Return

This activity will help you meet these educational goals:

• Content StandardsYou will compare and evaluate investment and savings options based on their rates of return.
• InquiryYou will conduct online research, in which you will collect information, make observations, draw conclusions, and communicate your results in written form.
• 21stCentury SkillsYou will use critical-thinking skills and communicate effectively.

Directions

Read the instructions for this self-checked activity.Type in your response to each question, and check your answers.

Activity

Part A

Review financial websites or publications and gather the following information for three company stocks:

• the industry each company operates in
• the current market price of the company's shares
• the share price exactly one year ago
• the capital gains/losses for investors in each stock for the past one year

Assuming that you bought one share of each stock exactly one year ago, and that the companies did not pay out dividends to investors.Use this formula to calculate the rate of return on each stock for the past year:

annual rate of return

The rate of return will be negative if the stock's current market price is less than what it was a year ago.Now, fill out the table below with the information you gathered for each stock.

Company 1 Company 2 Company 3

Companyname

Industry Currentshareprice($)Share price one year ago ($)

Annual capital gain/loss ($)

Annual rate of return ($)

Part B

Based on your research, which of the three stocks would have been the best investment option over the past year?Explain the reason for your choice.

Part C

Compare the capital gains from investing in the three stocks with the interest income on a one-year CD.Which would have been a more profitable investmentthe stocks or a one-year CD?Explain your reasoning.