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