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Fact checked by Vikki VelasquezFact checked by Vikki Velasquez

The United States spends more on the military than any other country. In 2023, military spending by the U.S. made up almost 40% of the total military spending worldwide, according to a report by the Stockholm International Peace Research Institute (SIPRI).

When adjusted to 2024 dollars, the U.S. spent $5.74 trillion on WWII alone. That’s more than WWI, Vietnam, Korean, or the post-9/11 Iraq and Afghanistan wars.

Key Takeaways

• The United States spends more on the military than any other country, up to almost 40% of the total military expenditures worldwide.
• When adjusted to 2024 dollars, the U.S. spent the most on military expenditures in WWII, measuring between WWI and the post-9/11 Iraq and Afghanistan wars.
• At $476.69 billion, the U.S. military spending for the Korean War was the smallest amount.
• The DOD requested $850 billion for 2025 to spend on the military. That’s about 3% of the GDP and relatively low compared to other times in U.S. history.

U.S. military spending is expected to increase by 10% over the next decade. Congress approved and signed the Department of Defense’s (DOD) new budget into law for fiscal year 2024, which includes $841.4 billion in funding for the Air Force, Navy, Army, Marine Corps, National Guard, and more.

According to projections by the Congressional Budget Office (CBO), military expenditures will reach $922 billion (in 2024 dollars) by 2038. Almost 70% of that increase will be for the operation and maintenance of military personnel.

This level of military spending has national and global impacts and affects the economy.

U.S. Military Spending by War: WWI – Post 9/11 Wars

Looking at military spending by war can show us how wars and defense spending affected the U.S. economy, factors that influenced military spending, and trends in defense spending over the years.

The total amount spent on each major U.S. war has been inflation-adjusted to 2024 dollars. All estimates are of the costs of military operations only and do not reflect the costs of veterans’ benefits, interest on war-related debt, or assistance to allies.

WWI (1917 – 1918): $466.91 Billion

The total cost of World War I was about $466.91 billion in 2024 dollars. When WWI began in 1914, the U.S. was in a recession. However, the economy began to recover and boom after European demand for U.S. goods increased during the war. 

This only intensified when the U.S. entered WWI in 1917, causing a massive increase in federal spending due to shifting the economy from peacetime to wartime production. Entering the war also created new manufacturing jobs and left more jobs open in the labor force, as many young men were drafted into the military. The government also funded the war by increasing taxes and selling Liberty bonds to Americans, who were later paid back the value of their bonds with interest. 

Funding WWI increased the U.S. national debt to over $25 billion by the war’s end. However, the U.S. emerged from WWI as an economic world power. Going into the 1920s, the national debt decreased, the government had a budget surplus, and stock market returns increased. The effect lasted until the economy crashed in 1929, the beginning of the Great Depression.

WWII (1941 – 1945): $5.74 Trillion

The U.S. spent nearly $6 trillion on World War II in 2024 dollars. In the peak year of spending, WWII expenditures made up 35.8% of the national GDP. Federal government spending on WWII was unprecedented.

The U.S. had one of the most significant periods of short-term economic growth between 1941 and 1945, largely fueled by government spending on WWII. The government-funded WWII mainly by increasing taxes and taking on debt. Government debt grew to more than $258 billion by the end of WWII. Tax rates also increased sharply, resulting in even families in poverty having to pay taxes. The average tax rate for top incomes rose up to 90% as well.

Important

To better understand how much the U.S. spent on WWII, if you spent $1 million per hour, 24 hours a day, for a year, it would take about 576 years to spend as much as the U.S. during WWII.  

War-time production also boomed during this time, with over 36% of the estimated GDP solely dedicated to producing war goods. Over this short period, the U.S. produced 17 million rifles and pistols, over 80,000 tanks, 41 billion rounds of ammunition, 4 million artillery shells, 75,000 vessels, and about 300,000 planes, among other equipment and services needed for the war. However, with so many resources going into war production, it became harder for families to purchase household items like washing machines, irons, water heaters, and food that had to be rationed.   

When the U.S. entered WWII, it was reeling from the effects of the Great Depression, the most severe and prolonged recession in modern world history, from 1929 to 1941. Many attribute government spending on WWII to the end of the Great Depression. However, this broken window fallacy challenges the notion that going to war is good for a nation’s economy.

The theory also suggests that a boost to one part of the economy can cause losses in another part. While WWII reduced unemployment from the Great Depression as many were enlisted or worked in factories, the standard of living declined because of rationing and high taxes. Private sector jobs and production fell, along with overall consumption and investment.

Korean War (1950 – 1953): $476.69 Billion

The U.S. spent about $476.69 billion on the Korean War in 2024 dollars. While it was technically a civil war between the two opposing sides of the Korean peninsula, the U.S. and the United Nations joined in 1950 to support South Korea in a clash over democracy versus communism.

The U.S. funded the Korean War by implementing higher tax rates, contrasting funding by debt as in WWII. To do this, the government enacted the Revenue Act of 1950, increasing income tax rates to WWII levels. Individual and corporate taxes were raised again in 1951.

This was a financially turbulent time as the government had to implement price and wage controls to respond to the inflation created by additional government spending. Consumption and investment, two key factors contributing to the GDP, slowed down during this time and did not go back to pre-war levels.

Vietnam War (1962 – 1973): $1.03 Trillion

The U.S. spent about $1 trillion on the Vietnam war between 1962 to 1973. Military operations for the Vietnam War ramped up more slowly than WWII and the Korean War, with troop deployments starting in 1965. However, the U.S. had been providing aid and military training to South Vietnam since 1954 when Vietnam split into communist North Vietnam and the democratic South.

President John F. Kennedy expanded military aid in Vietnam as the conflict escalated between the North and the South, and President Lyndon B. Johnson continued that trend after Kennedy’s assassination. Escalating U.S. involvement in Vietnam was, in part, due to fears of the domino theory—the belief that if communism took over in Vietnam, it would spread through all of Southeast Asia.

The U.S. funded the war effort mainly by increasing taxes and advancing an expansive monetary policy that eventually led to high inflation in the mid-70s. Non-military spending was also very high during this time (unlike in previous wars, where military spending was significantly higher than non-military spending), largely due to President Johnson’s Great Society social programs, which included domestic policy initiatives such as work-study, Medicare, Medicaid, increased aid to public schools, and more.

Financing the war through increasing taxes and expansionary monetary policy left a lasting effect on the economy. It fueled inflation and caused the market to stagnate, which eventually turned into stubborn stagflation.

Afghanistan and Iraq Wars (2001 – 2021): $3.68 Trillion

The U.S. spent a total of $3.68 trillion in 2024 dollars on the Afghanistan and Iraq Wars over two decades. Military spending reached record levels under President George W. Bush, who launched the war in Afghanistan and the War on Terror in response to the September 11, 2001 attacks and the Iraq War in 2003.

The Afghanistan and Iraq Wars began in weak economic conditions owing to the recession from 2001 to 2002 after the Dotcom Bubble burst. Since this was the first time in U.S. history when taxes were cut during a war, both of these wars were completely funded by deficit spending. The government used an expansionary monetary policy that included low interest rates and fewer bank regulations to help stimulate the economy, but it was unsustainable in the long term for the U.S. government’s finances. The Federal Reserve Board increased interest rates again in 2006 and 2007 to help curb the housing bubble before the Great Recession in 2008. 

Military spending on operations in the Middle East peaked at nearly $964.4 billion in 2010, although it decreased in 2012 after the Budget Control Act of 2011, which was enacted in part to limit military spending to help bring down the growing national debt. However, annual caps on military spending were removed as of 2021. The Iraq War ended in 2011 under President Barack Obama, while the Afghanistan War ended in 2021 under President Joe Biden.

Factors That Influence Military Spending

What Does Military Spending Include?

Every year, the U.S. Department of Defense (DOD) proposes a total budget and its specific allocations, which then go through Congress for approval. 

Military spending includes many different categories. The largest category is generally operation and maintenance, including military training and planning, maintenance of equipment, and a majority of the military healthcare system. In 2023, $318 billion was spent on military operation and maintenance.

The next biggest spending category is military personnel, which goes toward pay and retirement benefits for service members. About $184 billion was spent on military personnel in 2023. Other military spending categories include acquiring weapons and systems, research and development of weapons and equipment, and smaller categories such as building military facilities and family housing.

What Influences Military Spending?

Military spending can be influenced by several factors, such as wars, international tensions, and government expenditures. For example, military spending dropped significantly during the 1990s after the end of the Cold War before increasing again in the 2000s because of the War on Terror and wars in Iraq and Afghanistan.  

A shift in government priorities can affect military spending. After the Budget Control Act of 2011 was passed, military spending decreased, placing annual limits on defense spending—although these limits no longer exist.

Due to the U.S.’s involvement in other countries’ economic and political landscape, humanitarian aid and development in other countries can further affect future military spending decisions. 

Advancements in science and technology influence military spending, too. Developments in medical research, artificial intelligence, and new technologically advanced military systems affect defense spending. The Defense Appropriations Act for FY 2024 approved $21.43 billion in funding for science and technology, about $3.6 billion above the budget requested by the DOD. The bill also included more than $100 million over the requested amount for adopting artificial intelligence.

Impact of Military Spending

The U.S. government has historically used a combination of methods to help fund wars including increasing taxes, pulling back on non-military spending, debt, and managing the money supply. All of these methods have affected the economy in various ways.

For example, WWII and the post-9/11 wars were largely funded by debt, whereas the Korean and Vietnam wars were financed by increasing taxes and inflation. One common thread between the wars, however, is that they increased pressure on inflation. Though inflation can be useful for reducing debt, the overall effects harm the economy and cause issues such as eroding purchasing power and reducing international competitiveness.

Military spending can also spur technological growth and innovation, creating demand and new jobs. However, some argue that defense spending on military research can divert talent away from other industries. High levels of military spending during WWII helped end unemployment and even increased income distribution. However, consumption and investment decreased because of resource redirection to the war effort. 

While military spending has had some positive effects over the years, the macroeconomic effects of military spending on major U.S. wars have been largely negative, according to an analysis by the Institute of Economics and Peace. War financing through debt, taxation, or inflation puts pressure on taxpayers, reduces private-sector consumption, and decreases investment.

Military Spending as a Percentage of GDP

It’s important to note that while current U.S. military spending is higher than at any point of the Cold War (when adjusted for inflation), it is still low when considering defense spending as a percentage of the country’s GDP. The DOD has requested $850 billion in spending for 2025, which is about 3% of the GDP—that’s relatively low compared to other times in U.S. history. Looking at military spending in terms of GDP reveals that the U.S. economy has generally grown faster than military spending, so its share of the GDP has been lower. Military spending in the U.S. increased by 62% between 1980 and 2023, from $506 billion to $820 billion after adjusting for inflation. However, military spending still trails behind overall federal spending, which increased 175% over the same period.

What Country Spends the Most on the Military?

The United States spends the most on the military. In 2023, the U.S. accounted for about 40% of military spending worldwide, according to a report by the Stockholm International Peace Research Institute (SIPRI).

What Percentage of Tax Dollars Go To Military Spending?

In 2023, the U.S. federal government spent $6.1 trillion. Of that, 13% of the budget, or $820 billion, was spent on military spending, including operations and maintenance, military personnel, weapons procurement, research, testing, and development.

What Was the Most Expensive War for the U.S.?

World War II was the most expensive war for the U.S. so far, costing nearly $6 trillion total in 2024 dollars. In the peak spending year, WWII expenditures accounted for 35.8% of the U.S. GDP.

The Bottom Line

The U.S. spends more on the military than any other country. However, military spending as a portion of gross domestic product (GDP) is expected to decrease in the coming years. U.S. military spending is expected to increase by 10% over the next decade, reaching $922 billion (in 2024 dollars) by 2038, according to projections by the Congressional Budget Office (CBO).

The U.S. government has financed major wars by increasing taxes and debt and adjusting the money supply. Although military spending has reduced unemployment and has led to new developments in technology, the financing methods have increased inflationary pressures, causing negative long-term effects such as decreased purchasing power.

The larger macroeconomic consequences of large-scale military spending have included issues such as higher taxes, inflation, and larger government budget deficits.

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Reviewed by Samantha SilbersteinFact checked by Suzanne KvilhaugReviewed by Samantha SilbersteinFact checked by Suzanne Kvilhaug

Separate Trading of Registered Interest and Principal Securities (STRIPS) was created to provide investors with another alternative in the fixed-income arena that could meet certain investment objectives that were difficult to achieve using traditional bonds and notes.

Traditional bonds and fixed-income securities pay interest according to a set schedule and then return the investor’s principal amount at maturity. However, they are only available as single securities that pay both interest and principal. A new type of bond was eventually introduced that separated the repayment of the principal from the interest payments.

History of STRIPS

STRIPS were first introduced by investment dealers in the U.S. in the 1960s. They were initially created by physically stripping the paper coupons from bearer bonds and selling them as separate securities. The disadvantages of bearer bonds, such as the investor being unable to receive an interest payment if the coupon was lost or stolen, leading to issuing STRIPS in electronic book-entry form.

How They Work

As is stated in the acronym, STRIPS are simply bonds that have had the interest payments stripped away and sold separately, while the principal amount is still paid out at maturity. The U.S. government does not issue STRIPS directly to investors in the same manner as treasury securities or savings bonds. Instead, they are created by financial institutions such as investment banks, which purchase conventional Treasury securities and then strip the interest payments away from the principal to be sold to investors as separate securities with separate CUSIP numbers. However, STRIPS are still backed by the full faith and credit of the U.S. government, even though they have been disassembled. (STRIPS are also sold, issued, and backed by many other countries’ governments as well.)

Example

The U.S. Treasury issues a 30-year bond with a 3.5% coupon rate. An investment bank purchases $100 million of these securities and peels off the 60 semiannual interest payments of $3.5 million each. The bank then registers and sells each interest payment as separate securities along with the principal repayment to create 61 new securities.

Coupon STRIPS are the bonds created from each interest payment, while principal STRIPS represents the claim to repayment of principal from the original bond. Neither coupon nor principal STRIPS have a coupon rate and are thus considered to be zero-coupon bonds, which are issued at a discount and mature at par value. STRIPS are also created from Treasury Inflation-Protected Securities (TIPS) that do not have a set coupon rate and pay a floating interest rate. Because zero-coupon STRIPS do not pay actual interest, their durations are always equal to their maturities. A fixed-rate or inflation-adjusted bond that is stripped must have a face value of at least $100 and can only exceed this amount in increments of $100. A financial institution can also reassemble a STRIP into whole securities if it is able to acquire the principal STRIP plus all the remaining coupon STRIPS.

Tax Treatment

Zero-coupon STRIPS are taxed in a somewhat different manner than most bonds. Traditional bond issuers report the interest that was actually paid on their offerings to investors during the year, but STRIPS does not pay actual interest of any kind, depending on the date it was acquired.

Because STRIPS are issued at a discount and mature at par value, the Original Issue Discount (OID) applies. This requires investors to report phantom interest income that is equal to the increase in the value of the bond for that year. OID that is less than a nominal de minimus amount may be ignored until maturity when it would instead be reported as a capital gain.)

For each year the STRIP is held, the cost basis will increase, and a capital gain or loss could be generated if the bond is sold at a price different from the cost basis. If the bond is held until maturity, the entire discount will be classified as interest income. Investors who purchased STRIPS on TIPS must also report any inflationary adjustment amount every year. The phantom interest from STRIPS is reported by the issuer on Form 1099-OID; however, this figure cannot always be taken at face value and must be recalculated in many cases, such as when the STRIP was purchased at a premium or discount in the secondary market. The tax rules for these calculations are outlined in IRS Pub. 550.

Advantages and Disadvantages

Except for those that are adjusted by inflation, STRIPS always pay out the exact amount of their original coupon or principal amounts at maturity, which makes them ideal funding vehicles for when a definite amount of money is needed at a specific time. However, investors who wish to sell their STRIPS before maturity must often dump them at a loss, if they can sell them at all because the secondary market for these securities is often sparsely traded and sometimes nonexistent. As with other types of bonds, STRIPS can also yield capital gains or losses if they are sold before maturity. However, investors who sell STRIPS before maturity may still have to pay taxes on the OID interest that accrued until the sale date.

Who Buys STRIPS

STRIPS are appropriate instruments for many different types of investors. Many types of institutions buy these securities because of their guaranteed cash flows at maturity. Pension funds, insurance companies, and banks all hold STRIPS in their portfolios for this reason. Retail investors often buy them for the same reason. The phantom tax issue can be avoided by purchasing STRIPS inside IRAs and tax-deferred retirement plans, where they can grow until maturity with no tax consequence.

Conclusion

STRIPS provides an alternative to traditional bonds for investors who need to rely on definite amounts of money coming due at a specific future date. Although they post negative cash flows until maturity, they may also provide superior yields to traditional bonds in some cases and will always mature at face value. For more information on these versatile instruments, visit the U.S. Treasury website at www.treasurydirect.gov or consult your investment advisor.

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Reviewed by Michael J BoyleFact checked by Timothy LiReviewed by Michael J BoyleFact checked by Timothy Li

What Is Price Elasticity of Supply?

Price elasticity of supply is the responsiveness of a supply of a good or service after a change in its market price. According to basic economic theory, the supply of a good will increase when its price rises. Conversely, the supply of a good will decrease when its price decreases. This happens because producers want to take advantage of a rise in price, so they increase production of their goods and services until demand is exceeded—at which time prices begin to fall. Producers then decrease output to match the price decline.

Goods and services can be either elastic or inelastic. Elastic means the product is considered more sensitive to price changes—luxury goods and non-necessary items fall into this category. Inelastic means the product is less sensitive to price movements—food and gas are examples of inelastic supply goods.

Key Takeaways

• Price elasticity of supply indicates how quickly producers shift production levels in response to price changes.
• Economic theory predicts that when prices rise, producers will want to increase the quantity supplied to sell more at higher prices.
• If producers cannot cope with increasing demand, prices may continue to rise as quantity cannot keep up.

Formula and Calculating Price Elasticity of Supply

To find an item’s PES, you need to know the percent change in quantity supplied and the percent change in its price.

$begin{aligned}&text{PES} =$​PES=%CS÷%CPwhere:PES=Price elasticity of supplyCS=Change in supplyCP=Change in price​

So, imagine you have a farm that can produce and deliver 500 bushels of corn per quarter. The price for one bushel in the first quarter was $157.56. In the second quarter, one bushel was $159.25, and your farm produced and delivered 505 bushels.

First, determine the percent change in price:

• $159.25 – $157.56 = 1.69
• 1.69 ÷ $157.56 = 0.0107
• 0.0107 x 100 = 1.07%

Then, the percent change in supply:

• 505 – 500 = 5
• 5 ÷ 500 = 0.01
• 0.01 x 100 = 1.0%

Use the formula to calculate price elasticity:

1.0% ÷ 1.07% = 0.000107

A result of 0.0001 shows that your farm’s corn price elasticity of supply is very low or inelastic. But if your farm produced 525 bushels in the second quarter, the elasticity would change, but still be inelastic:

• 525 – 500 = 25
• 25 ÷ 500 = 0.05, or 5%
• 1.0% ÷ 5% = 0.2

Elasticity of Supply Possibilities

Price elasticity of supply has five possibilities:

• Perfectly elastic: The result is an infinite number
• Elastic: The result is less than one
• Unitary: The result equals one
• Inelastic: The result is greater than one
• Perfectly inelastic: The result is equal to zero.

So, if the corn from your farm has a price elasticity of supply equal to 0.2, it is elastic.

Perfectly Elastic Supply

The PES for perfectly elastic supply is infinite, where the quantity supplied is unlimited at a given price, but no quantity can be supplied at any other price. There are virtually no real-life examples of this, where even a small change in price would dissuade or disallow product makers from supplying even a single product.

Elastic Supply

A price elasticity supply greater than one means supply is relatively elastic, where the quantity supplied changes by a larger percentage than the price change. An example would be a product that’s easy to make and distribute, such as a fidget spinner. The resources to make additional spinners are readily available, and the total cost would be minimal to ramp production up or down.

Unitary Elastic Supply

Unitary Elasticity Supply has a PES of one, where the quantity supplied changes by the same percentage as the price change.

Inelastic Supply

The PES for relatively inelastic supply is between zero and one. That means the percentage change in quantity supplied changes by a lower percentage than the percentage of price change. An inelastic example is nuclear power, which has a long lead time given the construction, technical know-how, and long ramp-up process for plants.

Perfectly Inelastic Supply

Perfectly inelastic supply is when the PES formula equals zero. That is, there is no change in quantity supplied when the price changes. Examples include products that have limited quantities, such as land or a painting from deceased artists. The amount of gold on earth, for instance, is finite, as is the number of bitcoins ever to be mined. As a result, at some point, there cannot be an increase in supply regardless of price.

Price Elasticity of Supply vs. Demand

Price elasticity of supply refers to how responsive supply is to price changes—price elasticity of demand (PED) refers to how responsive demand is to price changes.

While price elasticity of supply is related to producer behavior, where producers increase and decrease supply due to price, price elasticity of demand is related to consumer behavior. The theory behind PED is that the higher prices rise, the less demand there will be from consumers.

What Does Elasticity of Prices Mean?

Elasticity of prices refers to how much supply and/or demand for a good changes as its price changes. Highly elastic goods see their supply or demand change rapidly with relatively small price changes.

Why Do Suppliers Increase Production When Prices Rise?

Rising prices often signal that demand is outpacing supply for a given product, meaning that the market could absorb more supply. Moreover, firms can profit by selling more goods at relatively higher prices, at least until the newly available supply leads prices to fall back down.

What Does Perfectly Inelastic Mean?

When a good has zero elasticity, it is called “perfectly” inelastic. This means the product’s supply and/or demand will not change, even as its price changes. Raw materials that are scarce or consumer staples that are needed for basic survival are often cited as examples of near-perfectly inelastic goods.

The Bottom Line

Companies hope to keep their price elasticity of supply high to remain nimble should the price of their products shift. That is, they want to be able to capture more profit should prices rise or trim production should prices fall. To help boost PES, companies can do several things.

These include improving the technology used, such as upgrading equipment and software to improve efficiency. Improved capacity and capacity on hand also boost PES, including boosting the stock on hand and expanding storage space and systems. Beyond that, improving how products are shipped and distributed can help. PES can also be increased by ensuring products can last long while stored.

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Reviewed by Robert C. KellyFact checked by Vikki VelasquezReviewed by Robert C. KellyFact checked by Vikki Velasquez

What Is Simple Random Sampling?

Simple random sampling (SRS) is a technique in which a researcher selects a random subset of people from a larger group or population. In simple random sampling, each member of the group has an equal chance of getting selected. The method is commonly used in statistics, a branch of applied mathematics, to obtain a sample that is representative of the larger population.

The simple random sampling method allows researchers to statistically measure a subset of individuals selected from a larger group or population to approximate a response from the entire group. Put simply, you can make inferences about a large population by examining a smaller sample.

This research method is commonly used for statistical analysis used to identify trends in many different areas, including business and finance. Individuals can use findings from statistical research to make better decisions about their money, businesses, and investments.

SRS has both benefits and drawbacks. We highlight these pros and cons in this article, along with an overview of simple random sampling.

Key Takeaways

• A simple random sample is one of the methods researchers use to choose a sample from a larger population.
• This method works if there is an equal chance that any of the subjects in a population will be chosen.
• Researchers choose simple random sampling to make generalizations about a population.
• Major advantages include its simplicity and lack of bias.
• Among the disadvantages are difficulty gaining access to a list of a larger population, time, costs, and that bias can still occur under certain circumstances.

Understanding Simple Random Sampling

As noted above, simple random sampling involves choosing a smaller subset of a larger population. This is done randomly. But the catch here is that there is an equal chance that any of the samples in the subset will be chosen. Researchers tend to choose this method of sampling when they want to make generalizations about the larger population.

Simple random sampling can be conducted by using:

• The lottery method: this method involves assigning a number to each member of the dataset and then choosing a prescribed set of numbers from those members at random.
• Technology: using software programs like Excel makes it easier to conduct random sampling. Researchers just have to make sure that all the formulas and inputs are correctly laid out.

For simple random sampling to work, researchers must know the total population size. They must also be able to remove all hints of bias as simple random sampling is meant to be a completely unbiased approach to garner responses from a large group.

Keep in mind that there is room for error with random sampling. This is noted by adding a plus or minus variance to the results. In order to avoid any errors, researchers must study the entire population, which for all intents and purposes, isn’t always possible.

Important

To ensure bias does not occur, researchers must acquire responses from an adequate number of respondents, which may not be possible due to time or budget constraints.

Advantages of Simple Random Sampling

Simple random sampling may be simple to perform (as the name suggests) but it isn’t used that often, although that doesn’t mean it shouldn’t be used. As long as it is done properly, there are certain distinct advantages to this sampling method.

Lack of Bias

The use of simple random sampling removes all hints of bias—or at least it should. Because individuals who make up the subset of the larger group are chosen at random, each individual in the large population set has the same probability of being selected. In most cases, this creates a balanced subset that carries the greatest potential for representing the larger group as a whole.

Here’s a simple way to show how a researcher can remove bias when conducting simple random sampling. Let’s say there are 100 bingo balls in a bowl, from which the researcher must choose 10. In order to remove any bias, the individual must close their eyes or look away when choosing the balls.

Simplicity

As its name implies, producing a simple random sample is much less complicated than other methods. There are no special skills involved in using this method, which can result in a fairly reliable outcome. This is in contrast to other sampling methods like stratified random sampling. This method involves dividing larger groups into smaller subgroups that are called strata. Members are divided up into these groups based on any attributes they share. As mentioned, individuals in the subset are selected randomly and there are no additional steps.

Less Knowledge Required

We’ve already established that simple random sampling is a very simple sampling method to execute. But there’s also another, similar benefit: It requires little to no special knowledge. This means that the individual conducting the research doesn’t need to have any information or knowledge about the larger population in order to effectively do their job.

Be sure that the sample subset from the larger group is inclusive enough. A sample that doesn’t adequately reflect the population as a whole will result in a skewed result.

Disadvantages of Simple Random Sampling

Although there are distinct advantages to using a simple random sample, it does come with inherent drawbacks. These disadvantages include the time needed to gather the full list of a specific population, the capital necessary to retrieve and contact that list, and the bias that could occur when the sample set is not large enough to adequately represent the full population. We go into more detail below.

Difficulty Accessing Lists of the Full Population

An accurate statistical measure of a large population can only be obtained in simple random sampling when a full list of the entire population to be studied is available. Think of a list of students at a university or a group of employees at a specific company.

The problem lies in the accessibility of these lists. As such, getting access to the whole list can present challenges. Some universities or colleges may not want to provide a complete list of students or faculty for research. Similarly, specific companies may not be willing or able to hand over information about employee groups due to privacy policies.

Time Consuming

When a full list of a larger population is not available, individuals attempting to conduct simple random sampling must gather information from other sources. If publicly available, smaller subset lists can be used to recreate a full list of a larger population, but this strategy takes time to complete.

Organizations that keep data on students, employees, and individual consumers often impose lengthy retrieval processes that can stall a researcher’s ability to obtain the most accurate information on the entire population set.

Costs

In addition to the time it takes to gather information from various sources, the process may cost a company or individual a substantial amount of capital. Retrieving a full list of a population or smaller subset lists from a third-party data provider may require payment each time data is provided.

If the sample is not large enough to represent the views of the entire population during the first round of simple random sampling, purchasing additional lists or databases to avoid a sampling error can be prohibitive.

Sample Selection Bias

Although simple random sampling is intended to be an unbiased approach to surveying, sample selection bias can occur. When a sample set of the larger population is not inclusive enough, representation of the full population is skewed and requires additional sampling techniques.

Data Quality Is Reliant on Researcher Quality

The success of any sampling method relies on the researcher’s willingness to thoroughly do their job. Someone who isn’t willing to follow the rules or deviates from the task at hand won’t help get a reliable result. For instance, there may be issues if a researcher doesn’t ask the appropriate questions or asks the wrong ones. This could create implicit bias, ending up in a skewed study.

What Is Simple Random Sampling?

The term simple random sampling (SRS) refers to a smaller section of a larger population. There is an equal chance that each member of this section will be chosen. For this reason, a simple random sampling is meant to be unbiased in its representation of the larger group. There is normally room for error with this method, which is indicated by a plus or minus variant. This is known as a sampling error.

How Is Simple Random Sampling Conducted?

Simple random sampling involves the study of a larger population by taking a smaller subset. This subgroup is chosen at random and studied to get the desired result. In order for this sampling method to work, the researcher must know the size of the larger population. The selection of the subset must be unbiased.

What Are the 4 Types of Random Sampling?

There are four types of random sampling. Simple random sampling involves an unbiased study of a smaller subset of a larger population. Stratified random sampling uses smaller groups derived from a larger population that is based on shared characteristics and attributes. Systematic sampling is a method that involves specific members of a larger dataset. These samples are selected based on a random starting point using a fixed, periodic interval. The final type of random sampling is cluster sampling, which takes members of a dataset and places them into clusters based on shared characteristics. Researchers then randomly select clusters to study.

When Is It Best to Use Simple Random Sampling?

It’s always a good idea to use simple random sampling when you have smaller data sets to study. This allows you to produce better results that are more representative of the overall population. Keep in mind that this method requires each member of the larger population is identified and selected individually, which can often be challenging and time consuming.

The Bottom Line

Studying large populations can be very difficult. Getting information from each individual member can be costly and time-consuming. That’s why researchers turn to random sampling to help reach the conclusions they need to make key decisions, whether that means helping provide the services that residents need, making better business decisions, or executing changes in an investor’s portfolio.

Simple random sampling is relatively easy to conduct as long as you remove any and all hints of bias. Doing so means you must have information about each member of the larger population at your disposal before you conduct your research. This can be relatively simple and require very little knowledge. But keep in mind that the process can be costly and it may be hard trying to get access to information about all of the members of the population.

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Understanding the state of the economy can help investors make decisions

Reviewed by Robert C. KellyReviewed by Robert C. Kelly

The state of the overall economy can provide insight to investors for their decision-making. For instance, when considering whether to invest in a company that depends on consumer spending, it’s useful to know if the economy is facing a recession.

Economic indicators provide information about an economy and whether it is expanding or contracting. Most indicators are released monthly by government departments and agencies. They typically report on activity in the previous month and year for comparison purposes.

Read on for 10 important U.S. economic indicators that investors typically watch.

Key Takeaways

• Individuals who measure economic activity and predict future trajectories rely on the analysis of key pieces of macroeconomic data.
• Known as economic indicators, these data quantify various aspects of an economy.
• Economic indicators measure everything from economic growth to changes in prices to unemployment.
• Markets can react and change from news about key economic indicators.
• Information provided by economic indicators can help people make decisions about their investments.

1. GDP

The gross domestic product (GDP) of an economy provides the overall value of the goods and services that the economy produces and indicates whether it is growing or slowing.

The Department of Commerce’s look at the quarterly change in GDP breaks down the activity into changes in consumer spending, business investment, and government spending, as well as the net impact of foreign trade. The government puts out a preliminary first estimate, updates with a revised second reading as it gets more input, and then delivers a third and final report.

2. Employment Figures

The Department of Labor puts out a monthly release on employment that includes the number of jobs created the previous month by the private sector, the government, and some specific industries, as well as the national unemployment rate. Low unemployment can point to a strong economy, but can also predict rising inflation.

Important

The U.S. unemployment rate as of September 2024 was 4.1%.

3. Industrial Production

Industrial production is a measure of the output of manufacturing-based industries, including those producing goods for consumers and businesses. This monthly release from the Federal Reserve also reports on capacity utilization in the factory sector.

4. Consumer Spending

Consumer spending accounts for two-thirds of U.S. gross domestic product and is a good gauge of consumer spending health. The Department of Commerce’s monthly release on personal income and outlays provides data on consumer spending. It also provides information on inflation through a price index that reflects changes in how much consumers have to spend to buy certain items.

Note

Consumer spending represented almost 68% of GDP as of Q2 2024.

5. Inflation

Inflation is the general price level rise of goods and services in an economy. Too much inflation can mean the economy is overheating while very low inflation can be a harbinger of economic recession.

Depending upon the selected set of goods and services used, multiple types of inflation values are calculated and tracked as inflation indexes. The most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). The Producer Price Index (PPI) is also used to measure inflation as it relates to producers.

Note

The current inflation rate, as of September 2024, is 2.4%.

6. Home Sales

Home sales represent a major purchase for most people. Thus, the Census Bureau’s monthly report on new residential sales speaks to consumer sentiment. This report, based on contracts to buy new homes, provides input on sales of single-family homes regionally and nationally. It also reports on median and average sales prices.

The National Association of Realtors (NAR), a private realty trade association, puts out a monthly report on sales of existing homes, based on closed sales.

7. Home Building

The number of houses that builders started working on, as well as the number of permits that they obtained to start building houses, indicates real estate developers’ confidence level in the economy. The Census Bureau’s monthly release on new residential construction provides this regional and national information.

The U.S. Census Bureau is part of the U.S. Department of Commerce.

8. Construction Spending

Another construction-based indicator is the change in monthly construction spending, in dollars, nationally. This spending encompasses various construction-related expenses, such as labor and materials and engineering work. The Census Bureau’s report provides a breakdown of residential and nonresidential public and private construction.

9. Manufacturing Demand

The report on manufacturers’ shipments, inventories, and orders gives an indication of demand for manufactured items. The Census Bureau issues a preliminary monthly report and a more lengthy report as a follow-up. Both break down manufactured goods by many types and industries, from electronic instruments to machine tools to nondurable consumer goods.

10. Retail Sales

The Census Bureau’s monthly release on retail and food services sales is an indication of consumer spending health. This report shows retail sales in various sectors, such as department stores, furniture stores, and home furnishing stores.

What Is an Economic Indicator?

It’s a metric that’s generated by the collection of information about certain parts of an economy. Economic indicators can provide insight into overall economic health. They help policymakers, such as government employees and Federal Reserve board members, determine a course of action for the economy, as well as assist investors in their investment choices.

Where Can I Find Economic Indicators?

Various departments and agencies of the U.S. government release reports on U.S. economic indicators. These sites include the Census Bureau, the Bureau of Labor Statistics, and the Bureau of Economic Analysis. In addition, business publications and websites typically issue economic indicator news upon its release.

Is a Macroeconomic Indicator the Same As an Economic Indicator?

Yes. You’ll see both terms used. Macroeconomics is a branch of economics that focuses on the larger view of the economy, such as markets, businesses, and consumers. Individual indicators that reflect different areas of the economy such as GDP, inflation, and unemployment, all parts of macroeconomics, help people assess the behavior of the overall economy.

The Bottom Line

No one key indicator paints a complete picture of the state of the economy. However, a combination of indicators—such as the top 10 key economic indicators described above—can be used to inform a variety of economic and investment decisions.

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Fact checked by Kirsten Rohrs SchmittReviewed by Marguerita ChengFact checked by Kirsten Rohrs SchmittReviewed by Marguerita Cheng

What Is Cliff Vesting?

Cliff vesting occurs when an employee becomes fully entitled to their benefits on a specific date rather than gradually becoming partially vested over time. Typically, cliff vesting is used in employer-sponsored retirement or stock option plans. An employee is considered fully vested once they have reached the agreed-upon milestone, such as one year of service.

Key Takeaways:

• Cliff investing is a way for companies to incentivize employees when they are first hired.
• Employees are vested in certain employer benefit plans once they earn the right to receive plan benefits.
• Under a cliff vesting policy, employees are considered fully invested on a specified date rather than becoming partially vested over time.
• Plans usually have a four-year vesting schedule plan with a one-year cliff.
• Types of cliff vesting include time-based, milestone vesting, and hybrid vesting.

Understanding Cliff Vesting

Employers provide various benefits to attract and retain employees, including pensions, retirement plans like a 401(k) or a 403(b), and equity or stock options. Equity represents partial ownership of the company and is used to encourage loyalty and high performance. However, a company is unlikely to give employees stock until they have earned it, which takes time.

Cliff vesting refers to employees becoming fully vested in their plan by a specific date. Plans often have a four-year vesting schedule with a one-year cliff. Under this type of vesting for stock options, after one year of service, an employee would get 25% of their shares vested. After that, they would earn an additional 1/48th of their shares vested each month, or 1/16th every quarter, becoming fully vested after four years.

One thing to keep in mind is that vesting periods depend on and are set up by employers. This means cliff vesting may not apply to all companies or plans. Other plans might release benefit amounts over another scheduled period.

Important

While vesting plans must meet minimum standards set by the Internal Revenue Service (IRS), most employers require employees to demonstrate commitment over a period before offering financial benefits in the form of vesting.

Types of Cliff Vesting

Vesting schedules can be time-based, milestone-based, or a combination of both.

• Time-Based Stock Vesting: Employees earn equity over time, typically required to stay with the company for at least one year before exercising any options.
• Milestone Vesting: Employees earn options or shares after completing a specific project. In other cases, employees become eligible when the employee or company reaches a business goal, such as an initial public offering (IPO).
• Hybrid Vesting: This combines time-based and milestone vesting. An employee must meet a certain time requirement and achieve a milestone to receive options or shares.

Advantages and Disadvantages of Cliff Vesting

Advantages

Many managers see the benefit of cliff vesting as rewarding only those employees who are worth a company’s investment. Employees who are committed to the company will stick it out and reap the benefits of their employer-sponsored plans. If the cliff vesting period is short, it may seem attractive to a new employee who otherwise might have to wait longer to be fully vested in a benefit plan.

Costs are another key benefit, as companies want to invest in long-term employees. As such, they aren’t required to pay full benefits to employees who decide to leave before they reach the vesting period, which cuts down their expenses.

Disadvantages

Cliff vesting can also seem like a risky proposition to an employee. The contract or arrangement could terminate for some reason just before the initial qualifying period is complete. For example, there may be a hostile takeover of the company or a buyout whereby new policies nullify the cliff. Or the company could be a startup that fails before the vesting date.

Managers at startups have been dismayed when employees with the typical four-year-plus-one-year cliff vesting plan leave the company soon after the one-year cliff with 25% of their shares vested.

Pros

• Rewards long-term, committed employees

• Cost-effective

Cons

• Situations like takeovers may nullify the cliff

• Employees may leave immediately after reaching the cliff

Example of Cliff Vesting

Let’s assume an employee participates in a cliff vesting plan with a four-year schedule and a one-year cliff. Here’s how it works:

• Year 1: The employee becomes 25% vested in their stock options after one year of service.
• Year 2: During year two, they gain an additional 1/48th of their total shares each month.
• Years 3-4: This process continues monthly, allowing the employee to earn more shares gradually. By the end of the four years, the employee is 100% vested in their stock options.

If the employee leaves the company before the one-year mark, they forfeit all unvested options. If they leave after one year but before four years, they would retain only the 25% of options that have vested.

What Does Cliff Mean in Vesting Terms?

A “cliff” refers to a specific period that must elapse before an employee’s benefits become vested. During this time, the employee does not own any portion of the benefits. If the cliff vesting period is three years, the employee will receive benefits at the end of the three years, at which point they become fully vested.

What Is a 1-Year Cliff and 4-Year Vesting?

This type of cliff vesting arrangement means that an employee would get 25% of their shares vested after one year of service. An additional 1/48th of their shares would be vested every month that they stayed with the company. After four years, they would be fully vested.

What Is the Difference Between Cliff Vesting and Graded Vesting?

Cliff vesting occurs all at once on a specified date, such as after five years of service. Graded, or gradual vesting, occurs incrementally over time. For example, if the vesting period is 10 years, an employee might be 20% vested after two years, 30% after three years, and 100% after 10 years.

The Bottom Line

When considering joining a company, it’s important to understand the benefits offered and the vesting schedule. For example, a company’s 401(k) retirement plan might provide 100% vesting immediately, vesting after three years of service, or on a gradual schedule that increases your vested percentage for every year of employment. Note, however, that an employee’s contributions to a company retirement plan are always 100% vested, or owned, by that worker.

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Reviewed by Eric EstevezFact checked by Yarilet PerezReviewed by Eric EstevezFact checked by Yarilet Perez

A special purpose entity (SPE)—or a special purpose vehicle (SPV)—is a legal entity that has been established to separate an asset, subsidiary, or financial transaction from a larger corporation or government agency. 

A special purpose vehicle (SPV) is typically created for a limited task to help isolate risk with a transaction or an asset. For example, an SPV might be established for a subsidiary of a larger corporation. The balance sheet of the SPV is separate from the larger entity, which can help to track income, expenses, and debt for the SPV. A special purpose entity can also be established for joint ventures, such as a public-private partnership (PPP).

Key Takeaways

• Special purpose vehicles are legal entities that separate a financial arrangement or project from a larger corporation or government entity. 
• Public-private partnerships are collaborations between a government agency and a privately owned company.
• An SPV can help local governments complete projects sooner since the private company may have resources needed to complete the project.
• Since financing infrastructure projects can be costly, a partnership allows the private company to share in the costs and revenue.

How a Special Purpose Vehicle Works

Since special purpose vehicles function as subsidiary entities for larger parent organizations, they’re typically used to finance new operations at favorable terms. The SPV can raise capital without carrying the debt or other liabilities of the parent organization even though the subsidiary is often operated by the same individuals and serves purposes that benefit the parent organization.

Although SPVs can have their own employees and carry out tangible business operations, the entities are first and foremost an off-balance-sheet tool. The off-balance sheet status means that companies can change the SPV’s overall framework of asset and liabilities without those changes carrying over to the financial statements of the primary company.

The SPV allows for improved financing and a greater degree of operational control for the private agent. Since every SPV can vary based on its founding legal and financial agreements, its specific role is often unique to the partnership between the parent company or other entity.

Public-Private Partnerships

A public-private partnership is a contractual arrangement or collaboration between a public or government agency and a privately owned company. Public-private partnerships are formed to help with large public projects, such as infrastructure, public transportation, convention centers, and parks. 

A public-private partnership can help a local government complete a project sooner since the private company might have equipment and resources needed to complete the project. Also, financing infrastructure projects can be costly, and a partnership allows the private company to share in the costs, which can help the government save money. Oftentimes, a private company can be more cost-efficient and effective at delivering the necessary products and services. In return, the private company earns income from the government or a share of the revenue generated from the project.

Benefits of SPVs in a Private-Public Partnership

Many private partners in a public-private partnerships demand a special purpose vehicle as part of the arrangement. This is especially true for capital-intensive endeavors, such as an infrastructure project. The private company might not want to take on too much financial exposure, so an SPV is created to absorb some of the risks.

There isn’t a uniform operational role or legal design for the use of SPVs in a PPP; the particulars vary depending on the agreements of the actors and stakeholders in the project. However, every SPV needs to be created in accordance with the proper legal and accountancy rules in the jurisdiction.

SPVs and Default Risk

Most public projects rely on support from commercial banks or other financial institutions. Typically, the SPV represents the financing wing and is used to attract funds from other lenders and investors. This arrangement protects the government agency and all financing parties from immediate counterparty risk. In the case of non-recourse financing, the lender’s only valid claims are limited to project assets in the case of non-completion or default, which is non-payment of the loan.

SPVs and Financial Flexibility

In turn, the SPV’s balance sheet or financial transactions do not impact the balance sheets of the private company nor the government agency. As a result, the government agency is able to keep the project’s debt and liabilities off its own balance sheet, which leaves more fiscal space for other public obligations.

The additional fiscal spending capacity can help lead to higher government bond credit ratings. Government bonds are debt securities that are issued to raise funds for projects and investments. All bonds have an assigned credit rating that is issued by credit rating agencies, such as Standard & Poor’s (S&P). The ratings are a numerical value representing the likelihood of default by the government issuing the bond. Typically, government bonds are considered low-risk investments since they’re backed or guaranteed by the government.

The SPV in a public-private partnership can help a government maintain financial and fiscal flexibility allowing it to issue bonds if needed for other projects. Also, a better credit rating can lead to a lower interest rate on any outstanding bonds, which can help governments keep their expenses or debt-servicing costs low.

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Reviewed by Thomas BrockFact checked by Vikki VelasquezReviewed by Thomas BrockFact checked by Vikki Velasquez

Samsung vs. Apple’s Business Model: An Overview

Is Samsung better than Apple, or is it just a wannabe? The question arises because Samsung Electronics Co. Ltd. (SSNLF) and Apple, Inc. (AAPL) have been engaging in a global pitched battle since at least 2014 when a leaked Samsung memo declared that its Number One priority was “beating Apple.”

It made sense that Samsung would try to incorporate elements of the Apple business model, especially after the American technology giant passed Exxon Mobil Corporation as the world’s most valuable company in 2011. Ask either company, however, and you are likely to hear there is too much emulation going on.

Apple is still at the top with a market cap of $3.54 trillion in October 2024. Samsung may be far behind, but it’s no slouch at a market cap of about $290 billion.

Key Takeaways

• Samsung and Apple are two consumer electronics giants with global reach and loyal customer bases.
• Samsung’s business model has focused on vertically integrating supply chains and ramping up production volume.
• Apple has made a business strategy of focusing on design and user experience while outsourcing elements such as manufacturing.
• The two companies have found themselves engaged in legal battles over intellectual property and patent fights.

Understanding the Samsung-Apple Wars

It is fair to say there is no love lost between Samsung and Apple. They are in a worldwide corporate battle that started in 2010 when Samsung, then an Apple supplier, released a suspiciously iPhone-like product through its Galaxy lineup.

Steve Jobs, Apple’s late CEO, was furious and went on the offensive; Samsung, in turn, dug in its heels.

Consider the almost unprecedented legal wars taking place between Samsung and Apple, which span four continents and billions of dollars in awarded damages. Or the aggressive, political election-style marketing campaigns that are reminiscent of the Ford versus Chevy attack ads.

From a business model perspective, the two companies are constantly converging and modifying, although stark contrasts remain. Samsung has been a global force longer and has its hands in more industries. Apple’s rise has been comparatively meteoric and focused.

In March 2014, someone leaked a Samsung strategy document from 2012 in which the Korean-based tech company boldly stated, “Beating Apple is #1 Priority (everything must be in the context of beating Apple).”

It is a telling example of the animosity between two of the world’s largest smartphone producers, who are clearly modifying their respective business strategies with each other in mind.

Samsung: Vertical Integration and Product Volume

Samsung operates like many other Asian producers, such as NEC Corporation or Sony Corporation, with an emphasis on vertical integration and a flood of products. Samsung is present in dozens of markets, including flat panels, sensors, LED lights, batteries, gaming systems, cameras, TVs, appliances, cellphone carriers, tablets, smartphones, and even medical electronics.

Before aiming at Apple, Samsung competed with, and in many cases bested, Japanese technology companies throughout the 1980s and 1990s. The company spends a fortune on research and development (R&D) and capital expenditures (CapX).

This strategy paid off in the mid- and low-end markets. But Samsung’s high-end products keep running into the juggernaut that is Apple.

Samsung relies on vertical integration as a chief competitive advantage. While Apple still imports billions of dollars worth of components from its rival every year, Samsung is accountable to nobody.

It is not a magical formula, Nokia was almost as integrated before being steamrolled by Apple and Samsung, but Samsung controls some logistical certainty in a way that Apple does not.

However, declining profit margins in 2014 and 2015 forced some introspective analysis within Samsung’s executive team. Then-company Chairman Lee Kun-hee saw his company’s global share of smartphone sales drop from 35% in 2013 to 24% in the third quarter of 2015.

His son and successor since late 2022, Lee Jae-Yong, reportedly wants to respond through mergers and acquisitions (M&A) and partnerships. This would be a historic shift in focus, likely signaling a departure from self-funded R&D and into outsourced innovation, not unlike Apple.

Apple: Design, Integration, and Outsourcing

From the perspective of target marketing, research, and product design, Apple is a much more focused company than Samsung. Apple succeeds in design and integration, taking no small degree of risk.

All of Apple’s products include programs that work very well with each other but not with any of its competitors’ products, which makes it easy for customers to keep buying Apple and difficult to switch brands.

Almost half of Apple’s 2023 revenue came from the iPhone lineup, making the company highly dependent on a single product.

Able to suppress R&D costs by outsourcing hardware component production and assembly, Apple’s CapEx looks radically different from Samsung’s ($2.09 billion as of July 1, 2023).

This inflates margins, boosts AAPL stock, and is one of the chief reasons Apple can grow at astounding clips.

Apple does not race to be first. It lets other companies spend time on R&D and early market development before swooping in and improving everything.

Consider the iPod, the first breakthrough product during Jobs’ second stint as CEO, which came out years after the Sony Walkman. Not content to just throw out an imitator product, Apple worked diligently with record labels to create a smaller, sleeker device.

There are similar stories with the smartphone and tablet markets, each considered a pillar of Apple innovation but neither of which the company invented.

Apple vs. Samsung: Endless Patent Lawsuits

Lawsuits are a common strategy from Apple, which is one of the most legally aggressive firms in the world.

The legal battle over intellectual property started in 2011 when Apple accused Samsung of “slavishly copying” the iPhone’s design and software features. Samsung countered the allegation by suing Apple for infringing Samsung’s software patents. This went on with multiple cases being filed on multiple patents and each company claiming billions of dollars in damages.

In 2012, a U.S. jury ruled In favor of Apple, making Samsung pay more than $1.05 billion for copying various hardware and software of the iPhone and iPad. Although in 2013 the penalty was reduced to $600 million, the jury said that Samsung should pay Apple an additional $290 million for patent infringing.

In a different trial in 2024, a U.S. jury found both companies infringed each others’ patents. Apple was awarded $120 million and Samsung $160,000.

By that year, both Samsung and Apple decided to drop all the patent cases outside the U.S. In 2015, Samsung agreed to pay $548 million to Apple to settle the original patent infringement from 2011. 

The case reached to Supreme Court in 2016 after Samsung challenged the lower court’s ruling that the company should pay Apple $399 million in damages for violating three of Apple’s design patents on the iPhone’s shape and icons. That was 100% of the profits earned from its smartphone business. However, the Supreme Court rejected the ruling and returned the case to lower courts.

In May 2018, a U.S. jury eventually found Samsung had infringed on the majority of the patents and ordered Samsung to pay Apple $539 in damages for “copying features of the original iPhone.”

Apple was awarded $533.3 million for Samsung’s violation of three design patents on the iPhone and an extra $5.3 million for infringing utility patents.

Which Sells More Phones, Samsung or Apple?

With the launch of the Galaxy S23, Samsung sold the most smartphones worldwide during Q1 2023, thus reclaiming the top spot from Apple during the quarter.

The company ended Q1 2023 with a 22% share of the global smartphone market, followed by Apple at 21%.

Which One Is Best, iPhone or Samsung Smartphones?

The Apple iPhone design is generally more minimalist and sleek. It’s easy to use, has a good camera, and lasts a long time on a charge.

Samsung’s smartphones, on the other hand, have more features and customization options, and a bigger screen.

Samsung smartphones are available at various prices. while Apple iPhones are only available at one price point (usually high).

How Are Apple and Samsung’s Business Models Different?

Samsung’s business model focuses on vertically integrating supply chains, ramping up production volume, and diversifying product offerings (electronic devices, appliances, and services) for a global customer base.

Apple’s business model focuses on design and user experience, continuous innovation, branding excellence, strategic partnerships, outsourcing, and long-term vision.

The Bottom Line

Samsung and Apple are two multinational major appliance and consumer electronics corporations with different business models and strategies. It’s also worth noting that while Samsung is currently more profitable,

Apple remains a much larger company overall. Samsung is valued at less than $290 billion, while Apple is the world’s most valuable company with a market cap of $3.57 trillion as of September 2024.

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Reviewed by Doretha ClemonFact checked by David RubinReviewed by Doretha ClemonFact checked by David Rubin

Private banking qualifies as one of the most potentially lucrative and satisfying careers available within the investment banking industry and the wealth management industry at large. Private bankers serve the needs of high-net-worth individuals (HNWIs), typically through one of the major investment banks such as JPMorgan Chase or Credit Suisse.

There are two primary occupations in the private banking area: relationship managers, who serve as the primary account manager, and investment professionals, who do the hands-on money management of client funds. In addition to providing brokerage accounts and managed accounts for investing, private bankers also offer services that include tax, estate, and charitable donation planning.

Success in the field of private banking is largely contingent on being able to sell yourself and your firm’s services to high-net-worth and ultra-high-net-worth individuals (UHNWIs). But to get into the field, you first have to be able to sell yourself in the job interview. To prepare, here are some of the typical private banker interview questions asked, as well as wealth management interview questions, and what they’re getting at.

“Why Wealth Management?”

This seemingly run-of-the-mill interview question is frequently used as an opener in the interview process to gauge how you ended up in the industry in the first place. For starters, there is no perfect “why wealth management” interview answer. Rather, in this question, it is best to be genuine and talk about what attracted you to the sector, rather than the salary.

For example, you could talk about understanding the power and opportunity behind financial markets, and how becoming a wealth management professional is both exciting and useful in being able to help people wisely manage their finances, which have real impacts. In addition, it’s a great skill to help cultivate the dreams and steward the resources to make an impact or be able to provide for their family.

“How Do You Conduct a Credit Risk Management Assessment?”

With this question, the interviewer is looking for your ability to conduct a fundamental analysis of a client’s financial position and credit risk. The proper answer is to lay out the basic steps involved in assessing an individual’s or firm’s credit risk. The first step is to thoroughly examine the client’s financial statements and evaluate them from various points of debt analysis, such as the leverage ratio, debt coverage ratio, liquidity ratio, and current ratio.

The second step is to consider the various financial metrics in conjunction with a qualitative fundamental analysis of the client’s overall financial health and income or revenue prospects, along with basic economic forecasts. The client’s credit history, especially with the bank, is another critical aspect to consider. All of these elements are then combined to produce a risk score using the bank’s own proprietary risk rating system. Reports to aid the bank or an outside underwriter in selecting an appropriate credit product are also helpful.

“How Would You Overcome a Client’s Reluctance To Work With You Because of Your Youth or Perceived Inexperience?”

For candidates in their 20s or perhaps even early 30s, this question represents the reality of the private banking clientele. The majority tend to be 50-plus years of age and may initially balk at turning over management of their wealth to some “kid.” An excellent response to this type of question is being able to cite previous successful experience in working with older, wealthy clients.

Alternatively, if you cannot cite such experience, a good approach is to express your strong confidence in your ability to successfully connect with people of any age or background to the point where they feel completely confident in your ability to handle their affairs. As the person interviewing you may themself be several years your senior, the very act of answering this question well serves as a demonstration of your ability to overcome the potential age obstacle.

“If You Started Today, What Is the First Investment You Would Make and Why?”

Come to the interview prepared to give an overview and fundamental analysis of virtually any investment area and, certainly, the principal sectors of equity investing or income investing. In the modern global financial environment, it is also a good idea to be prepared to compare and contrast financial markets in different regions of the world.

More specifically, you may be asked for one investment you would make right now and why. There is no one correct answer to this question. The interviewer is simply looking for evidence you are familiar with potential instruments, and they are also seeking to learn how you evaluate, pick, and choose from among the vast selection of investments available. It is simply important to have an answer ready, and more importantly, to have a good “why” for your answer. If you can answer a question like this with something a little bit more original than “Apple” or “Google,” and provide a convincing, logical argument for your choice, it is an opportunity to make yourself stand out from other candidates in the interviewer’s mind.

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Reviewed by Chip StapletonReviewed by Chip Stapleton

The target company in a hostile takeover bid typically experiences an increase in the price of its shares. A hostile takeover is when an acquiring company makes an offer to the target company’s shareholders, but the board of directors of the target company does not approve of the takeover. Concurrently, the acquirer usually engages in tactics to replace the management or board of directors at the target company.

Key Takeaways

• The target company in a hostile takeover bid typically experiences an increase in share price.
• The acquiring company makes an offer to the target company’s shareholders, enticing them with incentives to approve the takeover.
• A tender offer is a bid to purchase the stock shares of the target company at a premium to the market price of the stock.

Understanding How Hostile Takeovers Impact Shares

Hostile takeovers typically occur among publicly-traded companies where the owners are shareholders represented by a board of directors. A hostile takeover can occur for a few reasons. The two companies might have failed to reach a merger agreement, or the target company decided to not go forward with the merger. 

Also, a group of investors might believe the management of the company is not fully maximizing shareholder value. Also, the investors might make a case for a new management team. The acquirer can also be a company. Public companies can acquire a target company through the shareholders even if management doesn’t want the takeover.

The result is the use of hostile tactics to acquire the target company by the investors or acquiring company. The goal of the takeover by the acquirer is to achieve at least 51% ownership in the target company’s stock. The strategies used in a hostile takeover can create additional demand for shares while creating an acrimonious battle for control of the target company.

Tender Offer

Acquiring companies can use a strategy called a tender offer to purchase the shares of the target company. A tender offer is a bid to purchase the stock shares of the target company at a premium to the market price of the stock. In other words, an acquiring company might bid $50 per share for the target company when its shares are trading at $35 per share. As a result, a tender offer can lead to a significant increase in the stock price of the target company.

The reason the acquiring company makes an offer at a premium to the current stock price is to entice the existing shareholders of the target company to sell their shares and allow the acquiring company to own the majority stake. The tender offer is typically conditional on the acquiring company obtaining controlling interest in the target company. In other words, if the acquirer can’t entice enough shareholders to sell their shares, the bid to buy the company is withdrawn.

Proxy Vote

A proxy vote is another hostile takeover strategy whereby the acquiring company attempts to convince existing shareholders of the target company to vote out their executive management and board of directors. The acquiring company would then replace the necessary management team and board members with people who are open to the idea of the takeover and will vote to approve it.

Special Considerations

Hostile takeovers, even if unsuccessful, typically lead management to make shareholder-friendly proposals as an incentive for shareholders to reject the takeover bid.

These proposals include special dividends, dividend increases, share buybacks, and spinoffs. All of these measures drive up the price of the stock in the short-term and longer-term. Dividends are typically cash payments made to shareholders by the company. Special dividends are one-time payouts to shareholders. Dividend hikes are bullish catalysts, making the stock more attractive, especially in low-rate environments.

Share buybacks create a steady bid for the stocks and reduce the supply of stock. Spinoffs are strategic decisions to divest non-core business units to create higher valuations and provide a more focused vision and business for shareholders.

It’s important to note that hostile takeovers are usually a referendum on the target company’s management. Shareholders must weigh their faith in management’s long-term vision against the potential for quick profits.

Real-World Example of a Hostile Takeover

RJR Nabisco’s buyout is one of the largest and most controversial hostile takeovers in U.S. history. RJR Nabisco Inc. was a tobacco and food company and was eventually purchased for $25 billion by the investment firm; Kohlberg Kravis Roberts & Co in the late 1980s.

RJR managers had also presented bids in an effort to thwart the hostile takeover from Kohlberg Kravis. The initial bid from the management team began at $75 per share. Over the course of a few days of intense bidding, Kohlberg Kravis won the bid with $109 a share.

In other words, the winning bid was a 45% increase in the stock’s price from the initial $75 bid from RJR’s managers. The intense, contentious bidding war was chronicled in the book (and movie) titled “Barbarians at the Gate.”

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