V. STOCKS. G. The Value of a Stock 1.Pricing depends upon supply and demand 2.Return on Investment a.Price appreciation (capital gain) or depreciation.

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Presentation transcript:

V. STOCKS

G. The Value of a Stock 1.Pricing depends upon supply and demand 2.Return on Investment a.Price appreciation (capital gain) or depreciation (capital loss) is generally the primary component of stock gains or losses b.Return also includes dividends i.Dividends are declared by corporate boards of directors, and paid quarterly – payable to holders of the stock as of the declaration date ii.Ex-Dividend – the period between the declaration and the payment date – shares purchased when a stock is ex-dividend do not have a right to receive dividend payments

G. The Value of a Stock (Continued) 2. b. iii. stock price generally increases by the dividend amount until the ex dividend date is reached, then falls by the amount of the dividend after the record date (dividends are declared, and an ex-dividend date is set. Once the ex-dividend date has been set, payments are made to the “holder of record” as of the record date – generally 2 business days before the ex-dividend date) iv. Special Dividend – used to distribute excess cash to shareholders – ex. MSFT $3.00/share dividend in 2004 (normal was $0.32/share)

G. The Value of a Stock (Continued) c. Total return = Sale Price – Purchase Price + Dividends Purchase Price ex. – Stock purchased at $10 per share, $15 per share, received $0.50 per share in dividends ex. - Stock purchased at $10 per share, $9 per share, received $0.50 in dividends ex. -Stock purchased at $20 per share, $21 per share, received $0.75 in dividends

G. The Value of a Stock (Continued) 3.Factors Influencing Stock Price a.Stocks climb when the overall market is strong, when the company’s products or services are in demand, and when profits are rising b.Stock prices fall when the market is weak, competitors threaten market share, and when profits fall rt&t=1y * &z=m&q=l&c=

G. The Value of a Stock (Continued)

c.If the company is out of favor with investors, has serious management problems, or is losing market share, price can fall quickly d.Moving Average – shows the overall trend in a stock’s price, smoothing day to day variations – the moving average rolls over time – takes into account different beginning and ending periods every day