Readiness Activity. (An activity to be done before viewing the program)

Transcription

1 Knowledge Unlimited NEWS Matters The Stock Market: What Goes Up...? Vol. 3 No. 2 About NewsMatters The Stock Market: What Goes Up...? is one in a series of NewsMatters programs. Each minute program in the NewsMatters series examines an issue or topic in the news. The program is supported by a poster pertaining to the topic and a teacher s guide. NewsMatters programs are designed to promote discussion and critical thinking in the classroom. NewsMatters programs will rarely if ever provide clear-cut conclusions about an issue. Rather, each program s goal is to leave more questions in viewers minds than answers. The supplementary materials are designed to help focus and direct these questions and to generate thought and debate about the topic. These materials are flexible. You can control the pace and length of each lesson, and you can use any, all, or none of these materials. NewsMatters Teacher s Guide for THE STOCK MARKET: WHAT GOES UP...? The Stock Market: What Goes Up...? explores possible reasons the stock market rose for most of the 1990s. It explains the Dow Jones Industrial Average and the history of this index of the market s performance. The program also examines the relationship between the stock market and the national economy, and between investor expectations and market activity. This activity guide further encourages students to consider and research the issue. Ten of the following activities are designed to be reproduced. Your students can organize and complete seven of these exercises on their own. The others are for classroom participation and teacher presentation. NewsMatters is produced by Knowledge Unlimited, Inc. Teacher s guide copyright 2002 by Knowledge Unlimited, Inc., all rights reserved. ISBN Knowledge Unlimited NewsMatters, P.O. Box 52, Madison, WI Readiness Activity (An activity to be done before viewing the program) This activity will help your students become familiar with some of the important terms and themes in The Stock Market: What Goes Up...? before they watch the program. Divide the class into five groups. Assign each group three of the terms listed below. One member of each group should record an agreed-upon definition or description for each term as it is used in the context of the stock market and then present these definitions to the entire class for discussion. Dow Jones Industrial Average mutual fund point Nasdaq bear market profit stockbroker stocks dividend stock market inflation New York Stock Exchange bull market mutual fund Black Monday

2 Discussion Questions These questions will help you and your class review important points made in the program. The questions will also give some structure to your discussions about The Stock Market: What Goes Up...? After your students view the program, ask them to comment on these questions. Some questions have specific answers and others are more open-ended. You may wish to use these questions as a springboard for further discussion. What is the stock market? What is the Dow Jones Industrial Average? How did people involved with the stock market react when the stock market, as measured by the Dow Jones Industrial Average, reached,000? Why did they react this way? Why do companies sell stocks? Why do investors buy stocks? How are stocks bought and sold? What is the New York Stock Exchange? How does Nasdaq work? How can stock prices go up even when companies aren t making money, or when companies are just starting out? What do you think people look for in companies when they buy stocks? What should they look for? What is a mutual fund? How important have mutual funds been in recent years in the rise of the market? What are pension funds? Why do workers put money in pension funds? What is the difference between traditional stock brokers and discount stock brokers? Why do investors go to discount stock brokers to buy stocks? How has the Internet affected the stock market? When did the two biggest stock market crashes occur? What happened after each crash? Explain any differences between the two crashes. How does the nation s economy help drive the stock market? Do experts expect the stock market will always be a good investment, at least over the long run? Why or why not? Do you think the stock market is a good investment? Explain your answer. 2

3 Vocabulary reproducible activity There are many words and terms associated with the stock market. Write each of the terms listed below in the space provided next to its definition. assets Big Board bond blue chip equity diversification index fund initial public offering liability merger option securities 1. A slang term referring to the New York Stock Exchange. 2. Buying the stocks of different types of companies, or investing in different types of instruments, such as stocks, bonds, and real estate. 3. A mutual fund that buys all of the stocks listed in a stock index, such as buying only stocks listed in the Dow Jones Industrial Average. 4. All the things that make up the worth of a company. 5. An agreement that allows an investor to buy or sell shares of stock within a certain period for a specified price. 6. A top quality stock with a good record of earnings. 7. Something a company owes or that takes away from its worth. 8. A debt that companies, the U.S., and cities sell as a way to borrow money. It is sold for less than the value printed on it. It is then cashed in after a fixed time for its face value. Sometimes it also pays interest. 9. Stocks, bonds, options, and other such instruments.. Another name for a stock; it also means what is owned after all debts against a company are satisfied. 11. The first shares of stock that a company offers for sale to the public. 12. When two or more companies join together to form one. Look in the business section of the newspaper and list and define three more terms related to the stock market Answers on page 12 3

4 Reading the Market News (Part 1) reproducible activity When you look at the stock market report in your newspaper, you see columns of symbols and numbers. Let s look at what these symbols and numbers mean. We will use the following listing for the Walt Disney Company as an example. In the newspaper you would see something like this: 52 Week Stock Div Yld P/E Sales High Low Last Change High Low % 0s Disney First, you see the highest and lowest prices at which the stock has sold in the last 52 weeks. Stock prices are quoted in points and fractions of a point. A point actually means one dollar. The high for Disney was This means 38 dollars and cents. The lowest price was points or $ Next you see a symbol for the stock. Walt Disney Company is called Disney, but sometimes the symbols for a company are harder to figure out. You can learn a stock s full name by using the Internet or books in the library that list stock symbols and company names. Div means dividend. In this case, the dividend payment is 21 cents per share of stock per year. Yld is yield. This compares the dividend to the closing price, expressed as a percentage: the dividend is.8 percent of the closing price. P/E means price to earnings ratio. The figure here shows that the price of the stock is 38 times what the company earned per share. Next you see the number of shares sold for that day. The number is written in 0s so you would add two zeros to the number shown. In this case, 44,734,000 shares were sold. The highest price a share brought for the day was $ The lowest was $ At the market s close, Disney stock was selling for $ a share. The last entry in the listing is the change how much the price of a share changed from its last price on the previous day. Disney lost 7 8 of a point, or $.875 per share, from the day before. Study the listing and answer the following questions: 1. Was Disney s highest price for the day higher or lower than its highest price for the last 52 weeks? _ 2. How much of a dividend would you expect from Disney if you owned 0 shares of its stock? 3. How much would you pay for Disney stock if you bought 0 shares at its highest price for the day? 4. Suppose you paid the highest price of the day for 0 shares and sold those same 0 shares at the end of the day. How much money would you have lost? Answers on page 12

5 Reading the Market News (Part 2) reproducible activity Select three stocks from the stock market tables in your newspaper. Write the names of the stocks you have chosen in the spaces provided. Then in the lines below the name of each stock, answer the following questions: 1. What was the stock s highest price for the last 52 weeks? Its lowest? 2. Was its lowest price for the day higher or lower than its lowest for the last 52 weeks? 3. How much of a dividend would you expect from this stock if you owned 0 shares? 4. How much would you pay for this stock if you bought 0 shares at its highest price for the day? 5. Suppose you paid the highest price of the day for 0 shares and sold them at the end of the day. How much money would you have lost? 6. Suppose you paid the lowest price of the day for 0 shares and sold them at the end of the day. How much money would you have earned? 7. Based on this listing for one day, do you think the price of this stock is going up or down? (Check back in a week to see if you were right!) Stock Name Stock Name Stock Name

6 The Market s Climb reproducible activity The Dow Jones Industrial Average started out at a little above 40 points in It first closed at above,000 points in Did it rise steadily, or did the Dow Jones suddenly skyrocket? A graph of some of the stock market s milestones will give you an idea of how the market has moved over the last century. Mark the following record highs on the chart below and then connect the dots with a line. Year Record High , , , ,000 Note: The Dow Jones has gone above,000, but this exercise is stopping at that figure. Also, extreme drops are excluded from this chart. The record low came in 1932, when the Dow dropped to The Dow Jones can only go as low as zero, but there is no limit to the high it can achieve. 6,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, What was the percentage of increase in the Dow Jones between 1906 and 1928? 2. Between 1928 and 1958? 3. Between 1958 and 1972? 4. Between 1906 and 1999? Answers on page 12 Classroom discussion questions What does this chart tell you about the Dow Jones Industrial Average and the stock market? Why do you think the market has reacted the way it has over the last 0 years?

7 Calculating the Dow reproducible classroom activity When Charles Dow created the Dow Jones Industrial Average, he simply added up the price of the stocks on his list and then divided them by 12 the number of stocks to get the average. Today the formula is more complicated. One of the factors taken into account in the new formula is stock splits. When a stock is split, it means every share is divided. A stock is split when the price of individual shares becomes very high. For example, a corporation may decide that every $0 share will be split into two shares that are worth $50 each. Investors who already own this stock will own the same dollar amount of stock, but they will now have twice as many shares. Shareholders must approve such splits, which they usually do because it makes their shares easier to trade. The Dow Jones divisor has been changed to reflect stock splits. The theory is that if the stocks on the index had not split, the value of the individual shares would have grown very high perhaps as high as $,000 each. Today, the Dow Jones Industrial Average divisor is Discuss the following questions in class. 1. What would the total value of the Dow Jones Industrial Average stocks have to be today for the average to be 1,000? 2. Knowing that the Dow Jones divisor is so low, what do you think the chances are that the index will ever again go below 1,000? 3. Do you think a straight average that is, adding up the actual prices of the shares and dividing by the number of stocks would be a better way to figure the Dow Jones Industrial Average? Why or why not? 4. Some experts say the actual numbers on any graph of the Dow Jones Industrial Average don t mean anything in themselves. All they do is show whether the market is going up or down. Do you agree or disagree? Explain your answer. Answer on page 12 7

8 Investing in the Stock Market reproducible activity When the Dow Jones Industrial Average and other indexes go up, it seems as though everyone makes money in the stock market. But is this true? Do you think you could pick winning stocks? Select three stocks you think will increase in price. Write the names of the stocks in the spaces below. Write the most recent closing prices of the stocks. At the end of one month check the latest closing prices of the stocks again and write them down. Pretend that you bought ten shares of each stock. Did you earn or lose money? Number of Name of Stock Beginning Price Ending Price Shares Owned Profit or Loss Total Now do the same exercise as above, but this time choose three stocks totally at random. Did the three stocks you picked at random do better or worse than the ones you selected more carefully? Name of Stock Beginning Price Ending Price Shares Owned Profit or Loss Total Advanced activity: You may buy and sell the same three stocks during the month-long period. For instance, your stocks may rise rapidly and you may sell them, planning to buy them back within a few days. Or if a stock goes down, you might buy more shares of it and then sell them when the price goes up again. You must own a minimum of ten shares and a maximum of 0 shares of each of your stocks at any given point in the month. At the end of the month, sell all the shares of every stock. If you decide to play the market in this way, record all losses and profits on a separate sheet of paper. Your final profit or loss should take all these figures into account. 8

9 The Stock Market in Editorial Cartoons reproducible activity Editorial cartoons can be an enjoyable way to examine serious concerns. Each of these two cartoons illustrates a different idea about the stock market. Use the space below to explain the point each cartoon is trying to make. Do you think the cartoonists make their points effectively? Why or why not? What do these cartoons say about the stock market? Classroom discussion questions Which cartoon do you think makes the most important point about the stock market? Why? Do you agree with that point? Why or why not? What do you think makes a good or successful editorial cartoon? 9

10 Stock Market Movers reproducible activity If experts could name one factor that causes all stock prices to rise, then they could predict when stock investments would be profitable for everyone. But there are many things that contribute to a bull market. Below you see a list of factors that market analysts say help drive the market or influence the price of an individual stock. On a separate sheet of paper write a sentence or two explaining how each factor might influence the price of stocks. Find newspaper clippings or information online that tells about the events listed below and mentions stock market performance. The U.S. economy The world economy The growth of many new companies New technology, such as the Internet, that makes information available faster Low inflation Low interest rates Services that make it easier for investors to buy stock (such as mutual funds and employer-worker pension funds) There are also events that can affect the price of an individual company s stock and not always in obvious ways. On a separate sheet, write down how you think the events below might impact a company s stock. Be sure to give reasons for your answers. You might want to do research in the newspaper or online to see how similar events have affected companies stocks in the past. A company s profits are lower than expected A company s long-time chief executive officer retires A company lays off percent of its work force A company announces that it s opening 20 new stores A major lawsuit is filed against a company A company announces the launch of a brand-new product Two companies announce they are merging

11 Dow Jones Industrial Average Stocks reproducible classroom activity In 1896, Charles Dow, one of the founders and the editor of a newspaper called The Wall Street Journal, selected 12 stocks he thought best represented the nation s industry. At the time, agriculture and mining were perhaps the most important industries. Utility companies were growing, as both industry and private homes hooked up to gas and electricity. The stocks that made up the first Dow Jones Industrial Average represented all of these major industries. Over the years, more stocks were added to the Dow Jones index and others were replaced as the business of the nation changed. Here is the list of the 30 stocks that make up the Dow Jones Industrial Average today. Allied Signal Inc. Aluminum Co. of America American Express Co. AT&T Corp. Boeing Co. Caterpillar Inc. Citigroup Inc. Coca-Cola Co. DuPont Co. Eastman Kodak Co. Exxon Corp. General Electric Co. General Motors Corp. Hewlett-Packard Co. Home Depot Inc. Intel Corp. International Business Machines Corp. International Paper Co. Johnson & Johnson McDonald s Corp. Merck & Co. Microsoft Corp. Minnesota Mining & Manufacturing Co. J.P. Morgan & Co. Philip Morris Cos. Procter & Gamble Co. S.B.C.Communications Inc. United Technologies Corp. Wal-Mart Stores Inc. Walt Disney Co As a class, research these companies to learn what goods or services each produces. Each of you should research one or two companies. Then report your findings back to the class. As a class, discuss whether these companies are good choices to represent all of the stock market. Do these companies represent all the business of the U.S. today? Decide what types of companies should be included on this list. Now, make a list of 30 companies the class thinks best represent the nation s business. You can include companies from the Dow Jones index, but be prepared to defend your choices. Write your list on the blackboard. Name your index after your school, for example the Lincoln School Industrial Average. 11

12 Retirement Funds reproducible classroom activity At one time, few workers had pension funds. The first known pensions were paid to soldiers; military pensions were paid in America as far back as the Revolutionary War. In the 1920s, the U.S. government began to pay pensions to its non-military workers. In the 1930s, businesses also began to offer pensions. Workers and employers both contribute to pension programs. These programs can be invested in many different things. People can also set up their own retirement accounts and direct their own investments. In the 1930s, the government started a retirement fund for all workers called Social Security. Every worker in the U.S., other than those who work for the federal government, pays into Social Security. Social Security is a pay as you go program. This means the money taken in is paid out to persons receiving Social Security at that time. In recent years, Americans have become worried about Social Security because many people will be retiring in the next 20 years, and there will be fewer workers in relation to the number of retired persons. Some people think Social Security will run out of money. At times, however, Social Security has had a surplus. The government has allowed this money to be invested in U.S. Treasury bonds. These bonds are guaranteed by the U.S. government, but pay low interest. As a class discuss the following questions: How has uncertainty about Social Security affected the behavior of people saving for retirement? How has this uncertainty increased investment in the stock market? Is the stock market a good place in which to invest pension funds? Is safety or high return more important in a retirement fund? Some people have suggested that part of any Social Security surplus should be invested in the stock market. Do you think this is a good idea? Why or why not? Answers to questions on page 3 1- Big Board; 2- diversification; 3- index fund; 4- assets; 5-option; 6 -blue chip; 7-liability; 8-bond; 9-securities; -equity; 11-initial public offering; 12-merger Answers to questions on page 4 1-Lower; 2- $21.00; 3- $ ; 4- $75.00 Answers to questions on page 6 1-0%; 2-150%; 3-0%; % Answer to question on page 7 1- $