Transcript Chapter 1
Exam Next Week ● Study now ● Do WebStudy quiz for class after exam. 1-1 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Financing and Investing 1-2 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Financial Pages ● Cash instruments – normally just show interest rates – Annual Percentage Rate compare APRs – CDs will also show term length Yield 1 3 6 9 18 month month month month 1 year month CDs — New CDs — 0.30% 0.35% 0.40% 0.55% 2 year 3 year 5 year 7 year 10 year 0.80% 1.10% 1.75% 2.25% 2.75% Source: https://personal.vanguard.com/us/funds/bonds/bonddesk, 7/2/2013 1-3 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Bond Quotes Coupon – the interest rate ‘printed’ on the bond YTM – yield to maturity. The computed rate you get if you hold a bond to maturity Bonds are usually denominated in $1,000 amounts (face (par) value) Price – a percent of the face value Cur Yld – current yield = interest payment / current price Moody, S&P – ratings given by these bond rating companies Source: www.bondpickers.com, 2/27/12 1-4 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Stock Quotes Bid – what a person is willing to pay Ask – what a person wants for the stock Market Cap – Value of the company = price x (# shares) P/E – Price/earnings ratio = price / EPS The higher the P/E, the more the market thinks the company’s profits will grow EPS – earnings per share, the profit on one share of stock = net income / # shares Div – dividend paid per share of stock ( N/A means no dividends are paid ) Yield – dividend / price. ( N/A means no dividends are paid ) Source: finance/yahoo.com, 2/23/12 1-5 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Equities ● P/E ratio – ratio of price to earnings – a common comparison of stocks and markets high P/E means expect growth ● Dividends – Growth / Income tradeoff What would be your corporate policy, why? – Affects taxes for investors how? – Yield = dividend / price 1-6 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Stock Indexes ● Reflect the general activity of the stock market ● Most common indices – Dow Jones Industrial Average (the Dow or DJIA), – Standard & Poor’s 500 (S&P 500), – NASDAQ composite ● Foreign indices – DAX (Germany) – FTSE, FT-100 or “Footsie” (London), – Nikkei (Tokyo) 1-7 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Mutual Funds ● Mutual Funds – Investors pool their money to buy investments – Investors become part owners of a large number of securities, – lessen their individual risk ● Index funds / Managed Funds ● Load / No Load Funds 1-8 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Mutual Fund Quotes NAV – net asset value, i.e. the price Net assets – amount invested in the fund Yield – dividends paid / mutual fund share price Source: finance/yahool.com, 2/23/12 1-9 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Discussion ● Efficient markets – markets reflect the collective wisdom of all investors – can you beat the market? what do you know that people who have millions or billions at stake do not? index funds – why are ethics important in this context? 1-10 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. In-Class ● Watch CNBC – Understand the ticker – Understand the indexes – Listen and understand the discussion ● Look at – bloomberg.com – cnbc.com 1-11 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.