Unit 2


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Unit 2

  1. 1. Unit 2Unit 2 The Stock Market
  2. 2. Introduction to StocksIntroduction to Stocks Vocabulary Stock Share Stockholders Dividends Common stock Preferred stock Stockbrokers Stock exchange
  3. 3. A share of stock is a share of a business. Many people try to gain more money by investing their money in stocks. People who own stock are called stockholders. They are then a partial owner of the company that issues the stock and may share in a company’s profits, if the company makes a profit during the year. This is paid in the form of dividends. The company’s board of directors distributes the dividends proportionately by the number of shares outstanding.
  4. 4. Common stock is always issued by the corporation. It represents an ownership interest in the company. People owning common stock usually have the right to vote for the directors of the company. Preferred stock may also be issued by the corporation. This kind of stock is given certain preferential treatment over common stock. These stockholders may receive fixed dividends before the common stockholders are paid, along with other advantages. However, they generally have no voting privileges and cannot expect to receive more than their fixed dividend.
  5. 5. The prices of stock change often. Most active stocks change in value during a day’s trading. A corporation only has a certain number of shares available to buy. The laws of supply and demand cause the prices to fluctuate. Prices depend on general business conditions, company earnings, and what people think is the future prospect of the corporation. When more people want to buy, the market in stocks will rise. When more people want to sell, prices go down. The trick is to try and guess correctly; buy when the price is low, sell when the price is as high as it is going to go. Stockbrokers (or "brokers") are the people whose job it is to buy and sell stocks for the buyer. They also can give advice about which stocks might be good investments. The buyer pays the broker a small commission, or fee for services, each time stocks are bought and sold.
  6. 6. An excellent list of stock terms can be found on the net at the USA Today web page. Look under the heading "Financial Glossary." A stock exchange is the market place where brokers buy and sell stocks. The NYSE (New York Stock Exchange), AMEX (American Stock Exchange), and NASDAQ (National Association of Securities Dealers) are the three main U. S. stock exchanges. The current prices of many stocks are available on the net, along with a lot of other stock market information. Two sources are listed on the home page "hot points." See the "Reading and Understanding Stocks" section below on how to read the stock listings.
  7. 7. Reading and UnderstandingReading and Understanding the Stocksthe Stocks  Current stock listings on the net are organized a little differently from source to source, but they all have the same basic information.  First you have to type in the correct SFN, the abbreviation for the name of the company. If you don’t know what the abbreviation is, you can find it by looking in the "Search for Symbol" section on the USA Today web page. There are many other sources, too.  Once you have entered the correct SFN, you will see the information you need.
  8. 8.  Last - The most recent trade of a stock.  Change - This shows the change in price from the previous day’s closing price.  Currency - This shows the currency that is used, such as USD for U. S. dollar.  % Change - This calculates the percentage change in the price of a stock from the previous day's closing price.  Open - The price at which a stock opens the trading day.  Day Low - This is the lowest price that a stock has traded at during the day.  Day High - This is the highest price that a stock has traded at during the day.  Volume - This is the daily number of shares of a stock that changes hands between a buyer and a seller. Some sources give these listings in hundreds or thousands.  Dividend - The annual per share cash payout investors should expect.
  9. 9. P.E. - The Price-to-EarningsP.E. - The Price-to-Earnings RatioRatio The ratio of the market price per share to the earnings per share. The you should practice reading real stock information. You will look at a company's listing and ask them to figure out the answers to questions like these:
  10. 10.  1. What was the highest price paid per share that day?  2. What was the lowest price paid that day?  3. What was the closing price paid that day? (This might not be available because the web carries the latest information, and the market can still be open and changing!)  4. Now figure the net change. This is the difference in price from the last price paid per share on the previous day. It can be positive or negative. I want all students use a newspaper, too.
  11. 11. Stock quotations on the net are available in fractional form and . If you want to, you can have your students practice converting prices from their fractional form, as they are listed in the newspaper, to a decimal to the nearest thousandth. For example 12 3/8 means 12 3/8 dollars. Change the 3/8 by dividing 3 by 8. The result is 0.375, so 12 3/8 = 12.375
  12. 12. Stock Market PracticeStock Market Practice ProblemsProblems 1. Jessica earned $5.00 an hour baby-sitting. In an entire year that turned out to be 410 hours. How many shares of Disney stock, that is selling for 83 5/8 dollars per share, could she buy with that money? Don't include transaction costs at this time. Solution: $5.00 x 410 = $2050 to spend The price of one share is $83 5/8, or $83.625 $2050 divided by $83.625 = 24.5142003 Jessica cannot buy part of a share of stock, so she drops the decimal portion of the number. She can buy 24 shares of the stock.
  13. 13. Now find out how many shares Jessica could have purchased if the Cost per share is: 5 ¼ 16 1/8 31 7/8 22 ½ 75 5/16
  14. 14. 2. Pat earned $3170 during the summer. How many shares could he buy of a stock that is selling for 29 3/8 per share? This time include the broker's commission of 3%. Solution: Change the commission of 3% to 0.03 and multiply by 3170 3170 x 0.03 =$95.10 That is the broker's commission, which should be subtracted from the amount to be invested. $3170 - $95.10 = $3074.90 The price of one share is 29 3/8, or $29.375 Divide the amount he has left after the commission by the price per share: $3074.90 Ö $29.375 = 104.6774468 Again, the decimal portion of the number must be dropped because he cannot buy part of a share of stock. He can buy 104 shares of stock.
  15. 15. Now find out how many shares could be purchased if Pat had $3170 with a 3% broker's commission, and: Cost per share is: 5 ¼ 16 1/8 31 7/8 22 ½ 75 5/16
  16. 16. 3. Jason bought 36 shares of stock at 43 3/8, or $43.3125, per share. He didn't have to pay a commission fee. What was the total amount that Jason invested, to the nearest cent? Solution: Multiply and then round off to the nearest cent 36 x $43.31 = $1559.16 Jason invested $1559.16
  17. 17. Now find out the total amount invested (to the nearest cent) when: Number of Shares: Cost per Share: 25 $55.125 60 $11.25 100 $26.375 250 $9.875 40 $71.75 Total Cost $1378.13 $675.00 $2637.50 $2468.75 $2870.00
  18. 18. 4. Henry bought 40 shares of stock at 32 7/8, or $32.875, per share. He paid a commission of $39.45. What was the total amount that Henry invested, to the nearest cent? Solution: Multiply to find the cost of the shares, and round to the nearest cent. $32.875 x 40 = $1315.00 Then add the commission $1315.00 + $39.45 = $1354.45 Henry invested $1354.45 in all.
  19. 19. Now find out the total amount invested, to theNow find out the total amount invested, to the nearest cent, when:nearest cent, when: Number of Shares: Cost per Share: Commision Paid: 25 $46.50 $37.20 60 $16.45 $28.62 100 $9.375 $25.15 85 $49.125 $118.27 200 $37.75 $206.50
  20. 20. 55. Georgia sold her 30 shares of Nike stock five months. Georgia sold her 30 shares of Nike stock five months after she bought them. The sale price was $82 5/8 perafter she bought them. The sale price was $82 5/8 per share. She paid a commission of $74.36. What was theshare. She paid a commission of $74.36. What was the profit or loss on the $2416.77 that Georgia invested?profit or loss on the $2416.77 that Georgia invested?  Solution:  Multiply the price per share by 30 to find the total price of the stock  $82.625 x 32 = $2478.75  Now subtract the amount of the commission  $2478.75 - $74.36 = $2404.39  Since the amount received was more than the amount invested, there was a gain. Subtract to find the gain.  $2416.77 - $2404.39 = $12.38  Georgia had a gain of $12.38 on her investment.
  21. 21. Now find the amount of profit or loss when:Now find the amount of profit or loss when: Amount Invested: Number of Shares Sold: Sale Price per Share: Commissio n Paid: $75.00 100 $10.375 $31.13 $1254.75 30 $42.125 $31.60 $1500.00 70 $22.50 $47.25 $3328.00 200 $17.75 $88.75 $1950.86 50 $39.875 $59.81 Now you are ready for the project.
  22. 22. IV. Stock Market ProjectIV. Stock Market Project  This project is for students who are already familiar with the stock market. They can use their understanding in an investing simulation.  This can be done individually, in pairs, or in small groups. Each group starts with $20,000 (or amount of your choice) to purchase stock. You are to surf the net for stock advice. Stock selections can have other certain criteria of your choice. For example, one from a: – Clothes / shoes company – Food / restaurant – toys – one each from the NYSE, AMEX, and NASDAQ. – one picked randomly
  23. 23.  You should calculate a 3% commission each time they buy or sell stocks.  You will then collect their data using the net and other sources. You will make your stock selections and purchase stock. You then calculate their beginning portfolio value. (See directions below). At designated intervals, they should assess their portfolios. You will show your progress to the rest if the class using charts, graphs, and oral presentations.  At the end of the project, you prepare a written report summarizing how you did and what you learned. It may even include what you would like to do with the imaginary money earned, or what you would have to do without, in the case of losses.  You need "Buy/Sell Forms" to purchase and sell stocks. Here is an example of what a Buy/Sell Form could look like:
  24. 24. Buy / Sell FormBuy / Sell Form  Group -  Stock- Buy Sell Price of the Stock Number of Shares Price of Shares in all 3% Commission + - Total Price:
  25. 25. You will also need a "Stock Form" to record the price,You will also need a "Stock Form" to record the price, change, and value of that stock. Here is an example ofchange, and value of that stock. Here is an example of a Stock Form:a Stock Form:  Group -  Stock- Date Old Price New Price Change Number of Stocks Value
  26. 26. As a group keep track of their holdings on a "PortfolioAs a group keep track of their holdings on a "Portfolio Form." Example:Form." Example:  Portfolio Form  Group - Date Stock Value
  27. 27.  You will use plenty of math when they are trying to spend their $20,000 on stocks. You should discover that you need to have a system for figuring out and keeping track of your purchases. Hopefully you will come up with an organized list that will look something like this: Stock Price Number of Shares Cost of Purchase 3% Commission Total Price