http://got.im/XHc

http://www.npr.org/blogs/money/2011/01/14/132906135/ranking-cute-animals-a-stock-market-experiment

http://www.npr.org/2010/12/07/131726215/economics-experiment-pick-the-cutest-animal

How the Stock Market Works

Animal Videos

Podcast on NPR

PERIOD 8

PLAYING THE STOCK MARKET

DOW JONES INDUSTRIAL AVERAGE-AVERAGE OF 30 STOCKS IN THE MARKET

The DJIA is an index of “blue chip” U.S. stocks. It is called an “average” because it originally was computed by adding up stock prices and dividing by the number of stocks. The 30 companies that make up the DJIA are all major players in their industries; these stocks are widely held by individuals and institutional investors. These 30 stocks represent about 1/5 of the $8 trillion-plus market value of all U.S. stocks.

http://nyjobsource.com/djia.html

BULL TRADER-

Example: Stock ABC sells for $20 a shareYou purchase 100 shares of ABC stock, it costs? $____________ (hint: 100x20)Four months later ABC is now trading for $30 per share. What is the value of your stock? $________________ (hint: 100x30)If you sold the stock, what would your profit be? $______________

2,000.00

3,000.00

1,000.00

ANTICIPATES INCREASE IN THE PRICE OF STOCKS

HINTS TO FIND STOCK AS A BULL TRADER-

2.) The stock should be near the end of that range

WIDE

LOW

HEAVILY

1.) The stock should have a range in its 52-week high and low

3.) The stock should be traded

4.) The stock should have a P-E ratio below

5.) The stock should be trading for less than $ a share

15

30.00

P/E RATIO:If a companies stocks are selling for $40/share and

each share is earning a dividend of $2, the P/E Ratio is 20.

40/2=20

BEAR TRADER-

Example: Stock ABC sells for $40 a share1. You sell 100 shares short. To do this your broker “lends”

you 100 shares2. You would those shares. How much is your

investment worth? $____________ (hint: 100x40)3. Four months later ABC is trading for $20 per share. How

much would it cost you to pay for the 100 shares of stock? $____________ (hint: 100x20)

4. By paying for the stock at a lower price then you “short sold” it. How much is your profit? $______________

4,000.00

2,000.00

SHORT SELL

SOMEONE WHO BORROWS STOCKS FROM A BROKER EXPECTING THE STOCK TO DROP IN THE

HOPES OF MAKING A SHORT SALE—RISKY!!!

2,000.00

DAY TRADER:CONSTANTLY TRADING ONLINE FOR A

LIVING

Even though this form of trading has become extremely popular with the greater use of the Internet, it is extremely risky!! Some complain that it is as addictive as gambling.

DIVIDEND

a) Cash dividend: Base your answers on the IBM stock chart. 1. You own 1000 shares of IBM 2. The current dividend for IBM is $_________ per share 3. How much would your dividend check be? $__________

b) Stock dividend: Base your answers on the IBM stock chart. 1. From #3 above, how much would your dividend check

be? $________ 2. What is the current price of IBM stock? $________ 3. How many shares of stock would you receive? ________

480.00

480.00

48¢

MONEY PAID TO STOCKHOLDERS

121 1/8

3.96 (4) hint: 480 / 121.125

CAPITAL GAINS

The most attractive part of capital gains is they are taxed at a much lower rate than income. You only pay the tax when you sell!! Example: Bill Gates over a three year period made nearly $20 billion in profit on his shares of Microsoft stock. He paid ZERO DOLLARS in tax because he never sold the stock. If he ever sold the stock, he would pay capital gains tax, not income tax on his profits. Dividends are taxed at your income tax rate.

PROFITS MADE ON THE INCREASE OF THE VALUE OF STOCK

BUYING ON MARGIN

Example: Margin requirement is 20%1) You purchase 100 shares of XYZ stock for $200 a share. How much would this investment cost? $________________2) Since you only have to put 20% down, how much cash would you need to buy this stock on margin? $___________3) How much do you still owe on this investment? $________________4) Four months later XYZ stock is trading at $220 a share. If you sold the stock how much would your investment be worth? $____________________5) How much was your profit? $____________

4,000.00

16,000.00

20,000

BUYING STOCK WITHOUT PAYING THE FULL PRICEIt is similar to putting something on lay-away. Put a portion down now,

pay the rest later!

22,000.002, 000.00

SOME ADVICE ON PLAYING THE MARKET:Understand the ___________/________________ ratio. The more risk you take, the more money you could earn or lose!_____________ on to stocks as long as you canWhen the market drops dramatically, _________! ____________! _____________!Own stocks in at least ________ different industries. TEN is betterNever invest money that you many need. Invest only ________________________The stock market reacts to the economy. It rarely influences it.

REWARD

HOLD

RISK

BUYBUY BUY

SIX

SPARE SAVINGS

Stock Exchange –

SECONDARY MARKET WHERE SECURITIES ARE BOUGHT AND SOLD

The New York Stock Exchange (America’s largest companies):

Is considered a __________________ exchange b/c all trades must be

made on the ____________________________________Brokerage firms pay for their space on the floorMinimum qualifications to be traded on the NYSE

______________________ - $2.4 million in pretax revenue for the most recent year___________________ – the company must hold at least $18 million in assetsMarket value of common stock at least $_______ million in assetsPublicly held share – _______________________

Number of shareholders – _______________

EXCHANGE FLOORCENTRALIZED

EARNING POWER

ASSETS

18

1.1 MILLION2,000

American Stock Exchange –

1. Requirements are much less strict than those on NYSE

2. Is traditionally where smaller companies & new companies start

National Association of Securities Dealers Automated Quotation System–

1. Most often referred to as2. Sometimes called over-the-counter

stocks3. The most volatile exchange b/c it

features may hi-tech, insurance, and medical stocks

NASDAQ

BONDS & OTHER FINANCIAL INSTRUMENTS

What is a bond?• Formal contract to repay borrowed $ plus

interest on a schedule

It is a company borrowing money.Not all companies issue bonds.

Two reasons to invest in bonds

• Interest paid on bonds• Gains made by selling bonds

MONEY!!

Some Helpful TermsPar value

– Amount the bond issuer promises to pay the buyer @ maturity

Maturity– Date when the bond is due to be repaid

Coupon rate– Interest rate you receive every year until a bond matures

Yield– The annual rate of return

Treasury Bonds

• Issued by the U.S. Gov’t• Helps keep the gov’t running

Municipal Bonds

• Issued by the state & local gov’ts

• Used to pay for projects like roads, bridge, schools, etc.

Corporate/Junk Bonds

• Issued by companies

• Usually for business expansion

• Highest risk

Moody’s • A credit ranking agency

• Ranks the credit-worthiness of borrowers using a standardized ratings scale

Standard & Poor’s (S&P)• Publishes financial research & analysis on

commercial & gov’t entities

• Known for its stock market indexes

How Bond Ratings Work

Certificates of Deposit (CD’s)• Form of deposit offered by banks, credit

unions, & savings and loans

• Have a maturity date (usually 6 months – 5 years)

Mutual Funds• A pool of money managed by an investment

company

• Allows you to buy a lot of different comp

• Purpose is to be DIVERSIFIED

Transaction LogPurchase

Date:

Company Symbol:

Purchase Price/ Stock:

How many

shares?

Total Cost: Current Balance:

New Balance:

X X X X X X $10,000.00