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Online Lesson
About this lesson
grade level:
9-12
curriculum standards:
7
8
author:
Matthew Wolfe
More lessons from this author
posted on:
May 31, 2002
State Standards
Teacher's Version
This lesson provides you with the resources that you will need to teach this lesson. We have also provided a link for your students to follow this lesson online. The link below contains only the information your students need:
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EconomicsMinute
NYSE Made Easy
Key Economic Concepts:
- Investing
- Stock Market
Description:
This lesson will help students to understand the terms that are associated with the New York Stock Exchange. It will also help students to read a stock market report found in any major newspaper or online.
Lesson Objectives:
Students will:
- Gain knowledge of the terms associated with the stock market.
- Read and understand an internet stock display.
- Apply their knowledge of stock terms by making decisions completing a stock project.
Introduction:
The stock markets have been headline news items recently, as a record-high share values have been hit hard by a cyclical downturn in business activity and by specific adverse influences including the bursting of the dot com bubble, the events of September 11, and the business accounting issues highlighted by the Enron bankruptcy case. When we read about businesses filing for bankruptcy or people having lost their retirement funds, we may think it is an appropriate time to question why anybody invests in the stock market. Historically, the stock market has been a symbol of the economic strength of the U.S. economy. The largest stock exchange in the U.S. is the New York Stock Exchange or NYSE. More than 2,500 companies list their stock on the NYSE. Generally people invest in stocks in order to provide for their retirement; however, some people try to "get rich quick" through the market. In order to invest wisely in the stock market it is essential to do background research and to follow certain investment practices. A basic starting point has to do with understanding the language of the markets.
Resources:
A worksheet that will be used to keep track of stock information.
Teacher's Version of the worksheet.
A multiple choice interactive activity.
"CNBC" www.moneycentral.msn.com/investor/home.asp
A site that provides stock information.
CBS Market Watch www.marketwatch.com/avatar.asp?dist=
A site that provides stock information.
"NASDAQ quotes" http://quotes.nasdaq.com/
A site that provides stock information
"New York Stock Exchange" www.nyse.com/ - use the Quick Quote option
A site that provides stock information
"Understanding The Price to Earnings Ratio" http://stocks.about.com/od/evaluatingstocks/a/pe.htm
Process:
- The students will need to download this Worksheet.
- The students will use the following definitions to fill in Part 1 of the worksheet. Roll the mouse over each term on the chart to find its definition.
- The students will go to following link and research stock information to complete Part 2 of the worksheet. Then the students will return to the following websites for ten consecutive days to monitor stocks.
"CNBC" www.moneycentral.msn.com/investor/home.asp
A site that provides stock information. To access information about the required stock on the worksheet, the students will have to type the symbol of the stock into the light blue box in the upper right side of the screen labeled "get quote."
Conclusion:
Multiple choice quiz: All questions must be answered correctly to return to the lesson.
1. What is the largest stock exchange in the U.S.?
a. AMEX Exchange
b. NASDAQ Exchange
c. New York Exchange
d. Chicago Board of Trade
[Answer: C]
2. A high PE ratio indicates
a. That the stock is cheap to invest in at this point in time
b. That the stock is expensive to invest in at this point in time
c. The amount of profit a company is making
d. The amount of interest paid on the stock
[Answer: B]
3. Which of the following should be considered when investing in the stock market?
a. 52 week hi/low
b. PE ratio
c. Dividend
d. All the above
e. None of the above
[Answer: D]
4. The portion of a profit that is paid to a stock owner is the
a. Yield
b. PE ratio
c. Dividend
d. Volume
[Answer: C]
5. Which of the following indicates the percent interest the individual stock is paying?
a. Yield
b. PE ratio
c. Dividend
d. Volume
[Answer: A]
Based on all of the information you have collected, which stock would you invest in today? Why?
[This would be a good time to talk about investing for the "long haul" and diversification. Enron is a good example of what happens when all your eggs are in one basket. If students were to truly invest they would need more than ten days worth of information. However, if a student was to base his or her investment on this information, things to look for would be a low PE ratio or high yield percentage. Students might want to consider the 52 week hi/lo. If the stock price is close to the 52 week high, they might want to hold off. Students should also consider the dividend. You always want to see your company gain a profit.]
How does a dividend affect a stock's yield?
[A high dividend would indicate that a company is making a profit. When looking at yield percentage you want your closing price and dividend to be as close together as possible. In stocks and bonds, yield may be defined as the amount of money returned, in the form of dividends, to investors on their investments. Yield may also be referred to as rate of return which may be defined as the amount of money, in the form of dividends, returned to investors on their investments. Yield is calculated by dividing the dividend by the closing price of the stock. For example, If the dividend was $2.00 per share and the closing price was $3.00 per share, the yield percentage would be 66.6%. On the other hand if the dividend was $2.00 and the closing price was $20.00, the yield would be 10%.]
As an investor, do you want a stock to have a high or low PE ratio?
[It depends. The PE ratio needs to be looked at in relationship to the earnings per share. As a general rule, stocks are fairly priced if the PE ratio and earnings per share are equal. The PE is the relationship between a stock's price and it's overall earnings (dividends, stock price appreciating, etc.). "The PE Ratio is a gauge used to evaluate the price of a stock in terms of the company's bottom-line profit. Profit, of course, is reported as earnings. Earnings provide the fuel for growth. A company's stock price will rise or fall based on the stock's current earnings and, more importantly, the stock's potential for future earnings". The following website explains this in detail [http://stocks.about.com/od/evaluatingstocks/a/pe.htm]
Understanding the terms associated with the stock market are important to making educated decisions about investment. If students were to truly invest in the stock market, they would need to look at stock performance over a longer period of time. This would help them to get a good look at how the stock has performed over six months, a year, or five years. Once students have an understanding of the stock terms they are ready to move on to the project.
Assessment Activity:
Instruct the students to choose one stock using one of the following web sites that they might wish to invest in.:
- "CNBC" www.moneycentral.msn.com/investor/home.asp
- "CBS Market Watch" www.marketwatch.com/avatar.asp?dist=
- "NASDAQ quotes" http://quotes.nasdaq.com/
- "New York Stock Exchange" www.nyse.com/ - use the Quick Quote option
Once they've chosen a stock, they must prepare a short paper/presentation explaining why they decided on that stock. The paper/presentation should include the following information:
- The name of the stock and some background on the company. What does it produce? How long has it been around? How many offices does the company have? Is it an International company? Where are the company's offices?
- Details on the stock. What is it currently trading at? What has it done over the past year?
- At least two recent news items. Is the company releasing any new products? Is it merging with anyone else?
- Explain why you would or wouldn't invest in this stock. Use specific data to back up your decision. In your explanation, use terms such as the P/E, news items, historical figures, etc.
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