6.2 Stocks and Bonds

6.2 Stocks and Bonds Student Activity Packet UNIT: INVESTING Name: sydney nelson Students will be able to: ●​ ●​ ●​ Explain what stocks are and how they can make money from investing in them Explain what a bond is and the pros and cons of investing in bonds Identify ways to minimize risk when investing in stocks INTRO QUESTION OF THE DAY: If you invested $1,000 in Netflix stock ten years ago, what would it be worth now? Answer the question on the first slide in the space below. Then, compare your answer to the answer on the second slide. Finally, follow your teacher’s directions on how to answer the follow-up questions on the last slide. 1.​ If you invested $1,000 in Netflix stock ten years ago, what would it be worth now? It would be worth it because there has been constant growth and total return LEARN IT VIDEO: Investing Basics: Stocks If you want to grow your wealth, investing in stocks is a great option. Watch this video to learn more about what stocks are, how they work, and what you can do to minimize your risk when investing in stocks. Then, answer the questions. 1.​ Company A is raising $1 million at its initial public offering (IPO) by issuing 2,000 shares of stock. What is the value of each share? ​ $500 2.​ Julia buys a share of stock through her brokerage firm. What are the two ways that Julia could make money from owning this stock? Capital appreciation and dividends 3.​ Julia knows that investing in just one company is risky since there’s a chance that the stock’s value could decrease. What are some ways she can minimize her risk? Diversify her portfolio across other companies ​ ARTICLE: How to Read a Stock Quote REFERENCE: Stock Performance - Nike To understand if a particular stock is a good investment option for you, you’ll need to know how to read a stock quote so you can evaluate its performance. Read through this article to learn how to read a stock quote. Then, review the stock quote and answer the questions. 1.​ According to the article, why is it more useful to look at the percent change of a stock price, rather than the change in dollar amount?​ Because a dollar change is meaningless without comparing it to the previous closing price of the stock 2.​ Look at the stock performance for Nike. Describe the trend in Nike stock prices over the last year. What about the last 5 years? They have slowly gone down. The past 5 years it has been up and down. 3.​ Is Nike a small, medium, or large cap company? How do you know? ​ Large Because it exceeds a certain amount of money 4.​ Company B’s stock price is $500. You overhear a classmate say, “Based on the stock price, Company B’s value is clearly higher than Nike’s!” Why might your classmate be wrong? ​ Because Nike is more. 5.​ If you were considering buying a stock, which time frame would you use to analyze its price history (1-day, 5-day, 1-month, etc)? Why? ​ Probably 1 month to see how it does over a period of time LEARN IT EDPUZZLE: Investing Basics: Bonds Just as you might loan money to a friend, you can loan money to a government or corporation through a bond. Bonds are one of the most common investment options available to you. Watch this video to learn more about bonds and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself. NOTE: EdPuzzle videos shuffle answer choices and do not always match the order provided in the lesson here. 1.​ All of the following are true about bonds EXCEPT… a.​ Bonds are considered a riskier investment option than stocks. b.​ A bond is a loan given to a company or government by an investor who receives interest in return. c.​ Companies and governments issue bonds to fund new projects or ongoing expenses. d.​ Bonds are a way for investors to diversify their portfolios and generate additional income. 2.​ By the end of a bond's maturity, the investor will have received… a.​ Only the face value of the issued bond b.​ The face value of the bond issued and interest payments c.​ Only interest payments d.​ Half the face value of the issued bond and interest payments 3.​ What is default risk? a.​ The risk that the investor is not able to pay the face value of the bond. b.​ The risk that the company or government is not able to make interest payments. c.​ The risk that the investor demands the face value of the bond before the bond fully matures. d.​ The risk that the company or government is unable to pay back the investor. 4.​ You've decided you want to sell a bond before its maturity date. Interest rates are currently higher than when you bought the bond. What will you likely have to do to make your bond more appealing to investors? a.​ Lower the interest rate b.​ Sell your bond at a discounted price c.​ Increase the interest rate d.​ Sell your bond at a higher price INFOGRAPHIC: What are the Main Types of Bonds? As you learned in the previous video, you can buy a corporate bond or a government bond. There are different types of bonds within these two categories as well! Read through the infographic on this page to learn about the different bond types. Then, answer the questions. 1.​ The higher the risk associated with a bond, the ________ (more/less) likely a corporation might default on paying the investor. Interest rates for riskier bonds tend to be _______ (higher/lower) so that investors are ______ (more/less) willing to take on that risk. BONUS: A riskier bond usually comes from a corporation that has a ______ (low/high) credit rating. 2.​ Which tends to be a riskier investment - corporate bonds or government bonds? Why?​ Corporate because they carry a higher risk of default 3.​ Which type of bond would you be comfortable investing in? Explain. government ​ VIDEO: What Is Diversification? Let’s take a closer look at the second strategy mentioned in the previous video to manage investment risk: diversification. Watch this video to learn about the difference between diversifying by asset class and diversifying across investments. Then answer the questions. 1.​ Fill in the blanks: Diversification means choosing a ___________stock_____________________ to help reduce ____debt____________. 2.​ The video describes two ways to diversify. Give an example for each one. a.​ Diversify across asset classes (i.e. choosing the main parts of your portfolio) Pick which one you think is the most important b.​ Diversify within each asset class (e.g. choosing which stocks to buy) Choose which one you think will do the best ovetime 1.​ The video says “keep in mind that diversification does not mean you’re guaranteed to profit or that you’re protected against loss.” Why is it still a good idea to diversify your investments? To make sure you havve a couple of different options