======================== THE MOTLEY FOOL ========================
                        INVESTING  BASICS
                    Tuesday, September 18, 2001
benjamin.rogers@enron.com
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IN THIS ISSUE
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- Q&A: What's Up With P/E Ratios?

- Q&A: Why Do Bonds Fall When Rates Rise?

- LESSON: Banking the Right Way

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SPONSORED BY: Kaplan College
Become a Financial Planner! Kaplan College's online Cert.
in Financial Planning program prepares you for success in
the #1 ranked profession. Invest in your future career today!
http://www.lnksrv.com/m.asp?i=497031

=================================================================
YOUR QUESTIONS ANSWERED

Q. HOW COULD A COMPANY HAVE A PRICE-TO-EARNINGS (P/E) RATIO OF
77 AND A PROJECTED P/E OF 22?

A. If it currently trades at $77 per share and has $1 per share
in annual earnings, its P/E is 77. If it's growing rapidly and
is expected to earn $3.50 next year, the projected P/E for that
year is 22 (77 divided by 3.50 is 22).

Q. WHY DO BONDS FALL IN VALUE WHEN INTEREST RATES RISE?

A. To be precise, the prices of existing bonds will fall when
interest rates rise. The prices of newly issued bonds are fixed.
But let's back up a bit. Higher interest rates mean that
companies are likely to borrow less, produce less and thus earn
less. Since stock prices are tied to how much a company can
earn, higher interest rates theoretically cause stock prices to
fall. This, coupled with rising bond interest rates, makes bonds
more attractive to investors.

Imagine 5 percent bonds with 10 years left until maturity that
originally sold for $1,000 each. If you buy these bonds now,
you'll be getting $50 per year from each of them and then $1,000
at maturity. But if interest rates have risen since those bonds
were issued and you can buy new 10-year bonds that pay you 10
percent, that amounts to $100 per year per $1,000 invested. You
would obviously be willing to pay more for the 10-percent bonds
than the 5 percent ones. So the price of 5 percent bonds will
fall. It will fall to the point where $1,000 invested in the 5
percent bond will bring you same total yield-to-maturity as
$1,000 invested in the new bond.

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THIS WEEK'S LESSON

BANKING THE RIGHT WAY
All banks are not alike. You may have chosen yours for one good
reason, but learn more about your options and you might discover
some ways to save money. Here are some things to chew on:

- If you chose a bank due to its location, know that these days,
with newfangled inventions like the telephone, direct deposit,
the U.S. mail system, and even, dare we say, the Internet, you
don't need to be particularly close to a bricks-and-mortar
branch of any bank

- A good way to figure out exactly which of a bank's services
you most need to pay attention to is to make a list. Jot down
the following items on a sheet of lined paper and make three
columns, where you enter how much you spent for each category in
each of the past three months: ATM surcharges, "foreign" ATM
fees, other ATM fees, overdrafts, monthly maintenance fees,
check printing, deposit/other slips, call center charges, debit
card fees, low-balance penalty, per-check charges, return
check/NSF fees, money order fees, traveler's checks, and other
bank fees. This will help you quickly see where your money is
going and what features you should examine when evaluating a
bank.

- If you're parking any money in CDs, make sure you look around
for the best rates. Check sites such as Bankrate.com and you
could end up earning 2 percent more at a small bank a few states
away.

Bankrate.com:
http://www.lnksrv.com/m.asp?i=497032

- You can often get a higher interest rate on your checking
account at a small regional bank than at a big national one.
Better still, some discount brokerages are now offering banking
services. TD Waterhouse is a good example, offering money market
accounts, checking, direct deposit, and more (Waterhouse.com, 800-839-2837).

Waterhouse.com:
http://www.lnksrv.com/m.asp?i=497033

- Use direct deposit. It saves time and some banks will give you
free checking if you use it.

- Don't order checks from your bank, which might charge as much
as $25 for 200. You can get the same thing for a quarter of the
price through services such as Currentchecks.com (800-204-2244)
or Checksinthemail.com (877-397-1541).

Currentchecks.com:
http://www.lnksrv.com/m.asp?i=497034

Checksinthemail.com:
http://www.lnksrv.com/m.asp?i=497035

For more information and tips on the net, pop over to
financeservices.about.com and Gomez.com. Or visit our banking
information area at Fool.com:
http://www.fool.com/m.asp?i=497036

Gomez.com:
http://www.lnksrv.com/m.asp?i=497037

Financeservices.about.com:
http://www.lnksrv.com/m.asp?i=497038

=================================================================
SPONSORED BY: Kaplan College
Become a Financial Planner! Kaplan College's online Cert.
in Financial Planning program prepares you for success in
the #1 ranked profession. Invest in your future career today!
http://www.lnksrv.com/m.asp?i=497039

=================================================================

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