Standard 4.0 Investigate opportunities available for saving and investing. 4.3 Evaluate methods of investing.

a. Stocks and Bonds

Our Goals

Learn The Rules of the gameLearn and apply new indicators P/E ratios & Beta scoresMake stock trades

They say also

Start with $100,000.00 cashCan borrow additional $$ Negative cash balances charged %7

Positive cash balances pay %2

Rules

Daily interest = |Cash| * Appropriate Interest Rate/365

Negative = %7 or .07$1.92 = -10,000 * .07/365 $1.92 charged on your account

Positive = %2 or .02$0.54= 10,000 * .02/365 $.054 added to your account

The Formula

American Stock Exchange NASDAQ Stock Market New York Stock Exchange

All trades are end of day transactions. No matter what time trade is placed.

Available Stocks

Buy order minimum 100 shares Buy order minimum price $5 End of Day Pricing Broker’s fee of 1% on all transactions

Ex. 100 shares @ $10 = $1,000 * .01 = $10Total cost of trade = $1,010

The Numbers

Must buy at least 5 different stocks, bonds, or mutual funds

Make the 5 trades by week 5Minimum $5,000 per trade plus commission fees

Tennessee Rules 5x5x5

Previously LearnedCurrent Market Value52 Week High52 Week LowDaily high/low 4.3 Evaluate methods of investing.

Value Indicators

P/E Ratio

P = Price or current market value of stock E = Earnings per share

Ex. Stock price = $10 Earnings per share = $2 P/E ratio =5

4.3 Evaluate methods of investing.

New Value Indicators

Ex. Stock price = $10 Earnings per share = $2 P/E ratio =5

Compare 2 within similar industry

Company A -- High ratio = overpriced stock 20/2=10Company B -- Low ratio = underpriced stock 5/2=2.5

4.3 Evaluate methods of investing.

Beta Scores (risk score)

Measures the volatility of stocks relative to the market. Usually the S&P 500

The S&P 500 is considered to have a beta of 1

>1 is more volatile, <1 less volatile

4.3 Evaluate methods of investing.

Beta Scores

>1 is more volatile, <1 less volatile

Higher beta should yield higher return

Ex. If the market with a beta of 1 = 8% return

then a stock with a beta 1.5 = 12% return beta 0.5 = ?% return

4.3 Evaluate methods of investing.

Higher the Risk Higher the Yield