FINAL EXAM – STOCK MARKET SIMULATION
What is a stock? In the case of common stock, the stock represents a share in the ownership of a company. If you own a company’s stock, then you are an owner, or shareholder, of the company. A stock represents a claim on the company’s assets and profits. A stock is also known as equity. The ownership percentage of a company that you own is calculated by dividing the number of shares a person owns by the number of shares of stock outstanding. Example: 1000 shares owned divided by 10,000 shares outstanding equals 10% ownership.
So, now that you have stock and ownership of a company, what can you do? Generally, not very much. You will benefit when the price of the stock goes up, or lose if the price goes down. As a part-owner of the company, you are given the right to vote for the company’s board of directors. Another way you may benefit is if the company pays dividends. Dividends represent a percent of the company’s profit, paid to the shareholders.
Buying stock can be risky, since while the price of the stock may go up, it may also go down. If the company goes bankrupt, then you could potentially lose all the money you invested. However, that is what investing is all about. It’s taking risks, in the hope of making money on your investment, with no guarantees.
There are a number of stock market exchanges, such as the New York Stock Exchange (NYSE), where stocks are bought and sold. Stock market tables give you basic information and price history for stocks. You can use it to see how stocks you own (or are interested in owning) are performing, how their prices are changing, and how they have performed in the past. Reading a stock market table is simple.
Here is a sample line from a stock market table for the stock of General Electric:
<1>
<2>
<3>
<4>
<5>
<6>
<7>
Ticker
Company Name
Sales
100s
Hi
Low
Last
Change
GE
General Electric Co
6567
26.86
24.64
25.73
-2.40
<1>
Stock ticker symbol
This is the company stock symbol, and it represents the company’s stock. Often, the stock symbol is similar to the company’s name.
<2>
Company Name
This is the name of the stock.
<3>
Sales 100s
The number of shares that traded the last day this stock traded. The number is given in hundreds, so you need to add 2 zeros to the number to get the actual number of shares traded.
<4>
Hi
The stock’s highest price the last day this stock traded.
<5>
Low
The stock’s lowest price the last day this stock traded.
<6>
Last
The stock’s last traded price. Also sometimes called closing price.
<7>
Change
The amount of change of the stock’s closing price and the prior trading day’s closing price (2 trading days ago). A “-” represents a negative change.
Stock market tables can be found in newspapers (Washington Post, Wall Street Journal, etc.) The internet makes looking up stock table information even easier by using such sites as the Wall Street Journal NYSE Data Center (http://online.wsj.com/mdc/public/page/2_3024-NYSE.html),Yahoo Finance (click on Market Data, then Market Movers), and others. Online, you can drill down or surf around to see additional information on companies of interest such as charts on past performance, etc.
The Simulation Explained
This simulation may either be done in groups or individually. Each group (or individual) begins with $10,000. With this money, the group (or individual) must invest in stocks from 5 (or more) different companies. Use the “closing price” as you make your purchase, as you keep track of market fluctuations, and as you sell your stock. The timeline for this activity is a minimum of 15 business days. On the final day, you will sell your stocks and report on their portfolio’s value and what you learned. A two-page worksheet is attached here in working through the exercise. The link to the New York Stock Exchange is included at the top. Please staple an attractive cover sheet to the exercise with your name, date, etc. and turn it in on the date of the final.
STOCK MARKET SIMULATION WORKSHEET
http://online.wsj.com/mdc/public/page/2_3024-NYSE.html
COMPANIES: Name, Number of Shares Purchased, Cash Paid on Day One. You have $10,000 to spend.
(Example: Gannet: Purchased 63 shares x $4.30 = $1,999.50)
Company 1. __________________________________________________________________________
Company 2.___________________________________________________________________________
Company 3. __________________________________________________________________________
Company 4. __________________________________________________________________________
Company 5.___________________________________________________________________________
TOTAL MONEY INVESTED IN ALL MY STOCK PURCHASES:________________________
TRACKING CLOSING PRICES PER STOCK ON MY FIVE COMPANIES OVER 15 DAYS
(You’re looking for trends and patterns.)
Date
Company 1
Name:
Company 2
Name:
Company 3
Name:
Company 4
Name:
Company 5
Name:
SELLING! MONEY RECEIVED ON YOUR STOCK (BY COMPANY) SOLD ON DAY 15:
Company 1.___________________________________________________________________________
Company 2. __________________________________________________________________________
Company 3. __________________________________________________________________________
Company 4. __________________________________________________________________________
Company 5. __________________________________________________________________________
MY TOTAL STOCK SALES: ____________________________
MY OVERALL PROFIT/LOSS:_________________________________ (J or L)
(Total Money Invested Minus Total Stock Sales)
COMMENTS and REFLECTIONS:
What did you learn in this exercise: Look at each company and list which stocks were winners and which stocks were losers? What were your reasons for selecting the stocks (diversification, dividends, company history, etc)? In recording and examining the price fluctuation chart, did things such as world events or political statements influence the market? Why do you think certain companies outperformed others? When should you sell stocks or buy stocks? How would you do things differently next time? Based on this exercise, do you intend to invest in the stock market in the future?
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