Appreciation in the value of an investment option includes:
# Capital appreciation: This is the difference between the actual sale and the purchase price of a financial asset,
such as stocks, options, currency and bonds. For example, if an investor purchases 100 shares of a company for $10 per
share and sells the same after 12 months for $10.50 per share, then the capital appreciation is $50 ($0.50 per share).
# Interest amount: Interest is generally paid on capital invested in debt instruments, such as bonds and mutual funds,
as well as cash investments, such as savings accounts and certificates of deposit (CD). Interest can be either simple
or compound. Simple interest is the interest calculated on the principal amount and does not take into account the
time value of money (which refers to inflation/deflation and increases or decreases in the purchasing power of the
invested capital). Compound interest is calculated on both the principal and the interest accrued over 12 months.
Interest and capital appreciation together form the total return on investment (ROI). For instance, if a bond is
purchased at $20 and pays $2 as interest annually and the bondholder sells the bond for $25 after 12 months, then the
ROI is $7 ($5 of capital appreciation and $2 as interest).
Different methods are used to calculate interest in varies types of securities:
* Stock dividends, US mortgages and GIC - Simple interest is calculated.
* Bond yields - compounds interest every six months.
The Risks and Rewards of Payroll Cards
Martha C. WhiteMartha C. White RSS Feed
Dec 17th 2010 at 9:00AM
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Filed under: Banking, Extracurriculars, Career
a woman swipes a card into a machine - payroll cardsThe era of receiving a paper paycheck is rapidly becoming as
distant as the days when we relied on landlines for all our communication needs. To make things easier on workers --
and save a bundle on administrative costs in the process -- companies increasingly have been relying on electronic
payment methods. Many workers now are paid via direct deposit to a checking or savings account.
But for those who don't have, can't get or don't want a traditional deposit account, the option increasingly comes
down to a single choice: a payroll card, which is a reloadable debit card onto which a worker's funds are loaded.
According to the nonprofit organization Consumers Union, nearly $16 billion was loaded onto payroll cards in 2007, and
it's very likely that the numbers have climbed since then.
"With the advent of technology surrounding gift cards and prepaid cellphones becoming so prevalent, individuals are
more comfortable accepting payroll cards," says Bob Howe, former CEO of payroll card company Directo. These cards can
be helpful in that they're safer than carrying around potentially hundreds of dollars in cash and may help users avoid
as much as a 3% fee charged by a check-cashing storefront. But they're not perfect, and the legal gray area in which
they exist has some consumer watchdogs worried.
Sean Panizzi, branch manager at Teamtemps Personnel Staffing in Valdosta, Ga., says payroll cards were a lifesaver at
his business, which employs around 700 temporary staffers who work for clients in several Southeastern states. Paper
checks got lost in the mail or were sent to the wrong addresses, and they sometimes needed to be canceled, reissued
and overnighted -- at considerable expense -- when a client submitted the temp worker's hours incorrectly. About a
year ago, Teamtemps started offering the Global Cash Card, issued by MasterCard, to workers who didn't opt for direct
deposit. Panizzi says that workers loved the option, so much so that about 50% of them now opt for the cards.
Panizzi's company did a few things right when it started issuing payroll cards, according to the consumer advocates we
consulted. First, Teamtemps scouted out a card that even those without access to a bank could use without paying hefty
fees. This was a crucial step in picking a card provider, Panizzi says, since the company has many employees in rural
areas who would need to rely on ATMs to access their cash. (One problem with both prepaid and reloadable debit cards
is that there can be high fees for users who want to withdraw cash.) Teamtemps also got information about the card
translated into Spanish so workers who didn't have English as a primary language wouldn't struggle to understand how
the card worked.
Another card benefit? Howe says that they're much cheaper for employers to administer than the paper checks they
replace. In addition, for those Americans who are part of what watchdog groups dub the "unbanked," they can be a
less-expensive option. "We were focused on the workforce that didn't or couldn't get a bank account," Howe says of his
days at Directo. "This lets get them out of the world of check-cashing fees."
While this is true, the cards can come with plenty of their own fees, a prospect that worries some people like Jean
Ann Fox, director of financial services for Consumer Federation of America. While the initial purchase price of the
card is often borne by the employer, workers may be subject to fees when they withdraw cash at an ATM, make a purchase
in a store, call to check their balance, request a paper statement or need a card replaced if it's been lost or
stolen.
Prior to the passage of the Overdraft Act this July, some cards would even let users overdraw and incur hefty fees,
which is like extending a short-term loan -- at a payday loan prices. Given that these cards are specifically targeted
to workers who are financially unsophisticated, this could add up to a whole lot of trouble.
A big part of the problem is the relative lack of regulation around prepaid and reloadable debit cards. "Our position
is that they're legally nebulous," says Angie Wei, legislative director of the California Labor Federation. "There's
no oversight or regulatory framework."
* Bond coupons - are accrued daily and measured as simple rate.
* Stock indexes - Interest compounds annually on the price alone.
* Stocks and mutual funds - compound every time cash flows to/from investors.
* US normal mortgage - interest is measured as simple rate.load