FIN3244
FINAL EXAM
Pay particular attention to all the details of the terms and
examples:
Please read at least three times before the test
Chapter 3
Investing
Market
Orders- Order to buy or sell stocks no matter what the market price is, gets
done fast
Limit
Buy- order to buy if market price decreases to limit buy price;
Limit
Sell- if the market price increases to the Limit price;
Stop
Order- if market price increases stop prices; cover short position
Stop
Loss- Sell if market price decreases stop-loss price;
Online Information and
Investing
Indices: What is an index and why do
we use them? An index is just a collection of stocks, and we can look at a
number everyday and look at the level of that stock: DOW, NASDAQ, S&P 500; you cannot compare an index value to other
ones, only to its own past values.
DOW- biggest most recognizable
companies in
S&P 500- roughly 500 stocks, 500
big companies and recognizable companies in
NASDAQ- 3,000 technology companies,
young companies with big potential
Wilshire 5,000- 6,500 stocks,
broadest measure of stocks in
*Usually
they move together*
The
Role of Stockbrokers:
Online Brokers:
www.scottrade.com;
compares brokers
Online
Investing Tips:
-
studies show the more you trade, the harder it is to beat the
market; buy and hold
-
studies show that individual investors are too reluctant to
realize losses, and too eager to realize gains (too reluctant to sell loser
stocks, too eager to sell good stocks) on average online investors lose out on
3% return a year because of this psychological obstacle
-
Don’t believe everything you read online
-
Know how to place and confirm your order
-
Double check the ticker symbol and transaction
-
Use limit orders
-
Consider opening accounts with 2 brokers
-
Don’t invest for the “high”
Avoid
Scams: PUMP and DUMP (Phantom Example)
Pump up the stocks on an online chat
room, and then they dump the stock as everyone pushes it up
Get-Rich-Quick:
If it’s too good to be true, it is!
Test Review
1) E=100 B=25 Mi= 100/125=80% Mm=50% What price will you receive a Margin call? P < B/ (S-MmS) P=$5
V=100+25 V= SP 125=
S * ($5) S=25
P < 25/ 25-(.5)25 P < 2$ Mc < Mm V-B/V
< .50
SP-B/SP < .50 25(2) – 25/ 25(2) = 50% This is a check
Types
of Orders Practice
If you believe that a stock in your
portfolio that is currently selling for $43 would become overvalued if its
price reached $45, what order should you submit?
If you purchase a stock for $32 and
are concerned that the price may drop quickly if any bad news comes out, what
order should you submit to mitigate your losses?
If you are currently short on the
SPY exchange traded fund, which is trading at $127.12 what order should you
submit to protect yourself from incurring major losses?
If a stock that you do not own but
that you have been monitoring is currently trading for $21 and you believe it
would be significantly undervalued if it reaches $19, what order should you
submit?
If you short sold Wal-Mart when the
price was %52 and you believe that once the price hits $48 it will start to
come back up, what order should you submit?
If you entered a long position in
Apple when it is price was $60 and the price is now $66 and you want to tock in
at least $5 per share in profits what order should you submit? Stop Loss at $65
If Merck is currently selling for
$30 per share and they have a drug being reviewed for approval by the FDA what
order should you submit to profit from a positive review from the FDA? Stop
order at $31