Economics 5304

1
Economics 5/3/04

• OBJECTIVE Examine Investment Strategies and
  Financial Assets
• I. Journal 45 pt. A
• -Read Business Week Newsclip p.327
• -answer questions (1-2) p.327
• II. Administrative Stuff
• -Final Progress Report due Friday 5/7/04
• -Homework due Friday
• Ch12 sec3 (1,3-6) p.333
• Ch11-12 Review
• III. Journal 45 pt. B
• -notes on Investment Strategies

2
This week

• Today 5/3/04 Investment Strategies
• Tuesday 5/4/04 Equities, Futures, Options
• Wednesday 5/5/04 Ch11 Review (Journals due)
• Thursday 5/6/04 Ch12 Review
• Friday 5/7/04 Ch11-12 Test (HW due)

3
Risk

• Risk a situation in which the outcome is not
  certain, but probabilities for each outcome can
  be estimated.
• Low risk low return on investment, high degree
  of safety
• High risk possibility of high return, little
  degree of safety

4
p. 319
5
Bonds

• Bonds are long term obligations that pay a
  defined interest rate for a specific number of
  years
• The 3 components of a Bond
• coupon the interest rate
• maturity the length of time
• par value the amount borrowed (MUST be repaid
  when the bond matures)

6
Example of a Bond

• You have 1000 to invest. The Milewski
  Corporation is offering a ten year bond at a 10
  interest rate paid annually. If you decide to
  invest in the Milewski Corp. today, what is the
  coupon, maturity, and par value on the bond you
  purchase?
• Coupon
• -10 or .10
• Maturity
• -05/03/2014
• Par value
• -1000.00
• Annual Interest Paid
• -100.00

7
Was it a good investment?

• To determine if you made a good investment you
  should
• 1.) Determine the bond yield
• annual interest / purchase price current yield
• 100.00 / 1000.00 .10
• 2.) Check the Bond Rating
• 3.) Compare it to other similar bonds

8
Economics 5/4/04

• OBJECTIVE Examine Investing in Equities,
  Futures, and Options.
• I. Journal 46 pt. A
• -Read Market Efficiency p.328-329
• -What is the efficient market hypothesis?
• II. Journal 46 pt. B
• -notes on investing

9
Organized Stock Exchanges

• NYSE oldest, largest, and most prestigious in
  the U.S. Located on Wall Street in NYC
• AMEX smaller stocks, those who cant quite make
  it to the NYSE are traded here. (the JV team)
  Also located in NYC
• Regional Stock Exchanges originally listed
  small companies and new companies. Now, they
  trade local stocks and better meets the needs of
  smaller companies. Located in Chicago, Pacific,
  Philadelphia, Boston, and Memphis

10
Over-the-Counter Market

• OTC most stocks in the U.S. are not traded on
  organized exchanges. They are traded
  electronically using NASDAQ
• NASDAQ National Association of Securities
  Dealers Automated Quotation
• Few OTC stocks pay dividends. Most are small and
  new companies

11
Bull v. Bear

• Bull market when stocks are strong and stock
  prices are rising
• Bear Market when stock prices are falling

12
Measuring the Market

• Question How do you know if stock market is a
  bull or a bear?
• Dow Jones Industrial Average (the Dow) the
  average of 30 stocks traded on the NYSE
• SP 500 uses the movement of 500 stocks traded
  to determine an index number which shows the
  direction of the market

13
Futures Trading

• Spot you pay the price something is worth today
• Futures contract you buy at todays price and
  you sell at a specific date in the future at
  todays price, regardless of the market price at
  the time of sale.
• Example You buy 1 oz of gold at todays price
  You also agree to sell that gold at todays price
  to your friend six months from today. If gold
  six months from now is lower, you make money. If
  the price of gold is higher, you loose money.

14
Futures Market

• Where futures contracts are bought and sold.
• Most are associated with livestock and farm
  products.
• Futures markets are located in NYC, Chicago,
  Kansas City.

15
Options Markets

• Call option the right to buy the share of stock
  at a specific date and price in the future.
• Put option the right to sell a share of stock
  at a specific date and price in the future.

16
Economics 5/5/04

• OBJECTIVE Review for Ch11-12 Test
• I. Chapter 11 Mindjogger (video)
• II. Journals (33-46) Due
• III. Ch11-12 Review
• REMINDER Ch11-12 Test Friday

17
Economics 5/6/04

• OBJECTIVE Review for Ch11-12 Test
• I. Chapter 12 Mindjogger (video)
• II. Ch11-12 Review
• REMINDER Ch11-12 Test Tomorrow!!

18
Economics 5/7/04

• OBJECTIVE Demonstrate mastery of Ch11 12
• I. Chapter 11-12 Test
• II. Read Ch13 Economic Performance p.340-369
• End of 4th Progress Report