Instructions

  1. Assume you have $250,000 in savings. Create a portfolio of securities worth $250,000 at the start.
  2. Decide what financial instruments(stocks and bonds) you would like to use then find their current prices in the newspaper (Wall Street Journal, New York Times  or on line e.g. http://money.cnn.com/data/markets/
  3.  Note and reference the source of your information and the date.  Calculate your holding of each security based on current prices.
  4.  Create a schedule showing the stocks or bonds purchased and the price (use the closing price of the day).  See Attachment #1.

Provide short answers to the following questions:

  1. What objectives do you have for this portfolio? Did you choose it to maximize short-term gain, long-term security or some other objective?
  2. What have you done to ensure that you have a diversified portfolio of stock?
  3. What have you done to reduce market risk?
  4. Explain how each of the following event would affect the value of your portfolio:
    1. An increase or decrease in interest rate
    2. A recession
    3. Rapid inflation
    4. A depreciation of the U.S. dollar

 

Key numbers for stock watchers:

Price - Price of the last transaction before the market closed on the previous day of trading. The newspaper may report high and low from the previous day as well as change from the previous day closing price.

Dividend- share of profit distributed to eligible shareholders; given on a per share basis. Usually, what you see online is the amount of dividend paid out during the previous year.

Dividend Yield (dividends expressed as a percent of the stock price) = (Dividend per share/Price per share) x 100

 Price - Earnings Ratio = Earnings per share/Price per share. Earnings are the difference between the company’s revenue from sale minus its cost of production.  Typically, the price/earnings ratio is 15. Variations may indicate over or under valuation of the stock.

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