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Banking8/19/2013How is stock market datatransmitted to the investor?Key Terms Dow Jones IndustrialAverage (DIJA) ticker stock symbol ticker symbol trading volume trading price directional arrowSlide 57 total value of a trade uptick downtick money flow positive money flow negative money flow daily money flow net money flowFinancial Algebra Cengage Learning/South-WesternExample 1Marcy is following the stock market ticker scrollingacross the bottom of her TV screen on cablebusiness station. She had purchased some sharesof Visa, Inc. last week and is interested in seeing ifthere are any current trades. She knows that Visa,Inc. has the ticker symbol V. She saw the followinginformation: V 12K@87.37 0.12. What can Marcylearn from this line of symbols?Slide 59Chapter 1 Why might an investor be interested in a ticker?Financial Algebra Cengage Learning/South-WesternFinancial Algebra Cengage Learning/South-WesternSlide 58CHECK YOUR UNDERSTANDINGKevin knows that General Electric has the tickersymbol GE. What can Kevin learn from the followingline of symbols: GE 12K@73.72 0.55?Slide 60Financial Algebra Cengage Learning/South-Western15

Banking8/19/2013EXTEND YOUR UNDERSTANDINGHad the trading price of this transaction been at 87.35, what number would have appeared after thedirectional arrow? Explain your answer.Financial Algebra Cengage Learning/South-WesternSlide 61CHECK YOUR UNDERSTANDINGWhat would be the previous day’s close for a share ofCoca-Cola if the ticker had read KO 3K@57 0.25?Slide 63Chapter 1Financial Algebra Cengage Learning/South-WesternExample 2Tom needed money for graduate school tuition. Hecalled his broker and asked her to sell all 3,000 of hisCoca-Cola (KO) shares on Wednesday as soon as thetrading price hit 57 per share. Tom knew that CocaCola closed at 57.25 on Tuesday. How will his tradeappear on the ticker?Slide 62Financial Algebra Cengage Learning/South-WesternEXAMPLE 3Toni purchased 15,000 shares of stock of TargetCorporation at 54.88 per share. Her trade appeared onthe stock ticker as TGT 15K@54.88 0.17. What wasthe total value of her trade?Slide 64Financial Algebra Cengage Learning/South-Western16

Banking8/19/2013CHECK YOUR UNDERSTANDINGSuppose Toni made her purchase at the previousday’s closing price. What would have been thedifference between the values of the trades?Financial Algebra Cengage Learning/South-WesternSlide 65CHECK YOUR UNDERSTANDINGExpress 0.15M shares traded using the K symbol.Slide 67Chapter 1Financial Algebra Cengage Learning/South-WesternEXAMPLE 4Grandpa Rich left his three grandchildren: Nicole, Jeff,and Kristen, 8,750 shares of Apple Inc (AAPL) in hiswill. The grandchildren sold all of the shares at a priceof 190.30 on Friday. The closing price of Apple onThursday was 187.83. How did this trade appear onthe stock ticker?Slide 66Financial Algebra Cengage Learning/South-WesternEXAMPLE 5Laura is interested in trades of Microsoft (MSFT). Shehas been following the upticks and downticks for thepast two days. She knows that MSFT closed onTuesday at 20.68, with a high at 21.25 and a low at 20.50. There were 11,902,000 shares traded on thatday. She found that Monday’s closing price was 21.23.The high was 21.30 and the low was 19.95. Thevolume for Monday was 16,537,000 shares. Was thenet money flow from Monday to Tuesday positive ornegative?Slide 68Financial Algebra Cengage Learning/South-Western17

Banking8/19/2013CHECK YOUR UNDERSTANDING1-6Let H represent a day’s High, L represent a day’sLow, C represent a day’s close, and V represent theday’s volume. Write a formula that can be used todetermine the day’s money flow.STOCKTRANSACTIONSOBJECTIVESLearn the basic vocabulary of buyingand selling shares of stock.Compute gains and losses from stocktrades.Financial Algebra Cengage Learning/South-WesternSlide 69What is a stock portfolio?Key Terms Slide 71Chapter 1Financial Algebra Cengage/South-WesternSlide 70portfolioround lotodd lottradegross capital gaingross capital loss What does the term “portfolio” mean For an artist? For a student preparing for college? For the financial world?Financial Algebra Cengage Learning/South-WesternSlide 72Financial Algebra Cengage Learning/South-Western18

Banking8/19/2013Example 1Several years ago, Marlene purchased stock for 7,241.Last week she sold the stock for 9,219. What was hergross capital gain?Slide 73Financial Algebra Cengage Learning/South-WesternExample 2Five years ago, Jessica bought 300 shares of acosmetics company’s stock for 34.87 per share.Yesterday she sold all of the shares for 41 pershare. What was her capital gain?Slide 75Chapter 1Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGBrett used money he received as a gift for high schoolgraduation to purchase 4,000 worth of shares ofstock. After he graduated from college, he neededmoney to buy a car, so he sold the stock for 2,433.What was his capital gain or loss?Financial Algebra Cengage Learning/South-WesternSlide 74CHECK YOUR UNDERSTANDINGKelvin bought 125 shares of stock for 68.24 pershare. He sold them nine months later for 85.89 pershare. What was his capital gain?Slide 76Financial Algebra Cengage Learning/South-Western19

Banking8/19/2013EXAMPLE 3EXTEND YOUR UNDERSTANDINGRandy paid 3,450 for shares of a corporationthat manufactured cell phones. He sold it for 6,100. Express his capital gain as a percent ofthe original purchase price. Round to the nearesttenth of a percent.Three years ago, Maxine bought 450 shares ofstock for x dollars per share. She sold them lastweek for y dollars per share. Express her capitalgain algebraically in terms of x and y.Financial Algebra Cengage Learning/South-WesternSlide 77CHECK YOUR UNDERSTANDINGAllison bought shares in Citigroup Corporation in early2007 for 55 per share. She sold them later that yearfor 35 per share. Express her loss as a percent ofthe purchase price. Round to the nearest percent.Slide 79Chapter 1Financial Algebra Cengage Learning/South-WesternSlide 78Financial Algebra Cengage Learning/South-WesternEXAMPLE 4Andy paid w dollars for shares of a corporation thatmanufactured cell phones. He sold it for y dollars.Express his capital gain as a percent of the originalpurchase price. Round to the nearest tenth of a percent.Slide 80Financial Algebra Cengage Learning/South-Western20

Banking8/19/2013CHECK YOUR UNDERSTANDING1-7Linda bought 800 of stock in a garden equipmentcorporation. The selling price is x dollars. Express thepercent increase of Linda’s potential capital gainalgebraically.STOCK TRANSACTIONFEESOBJECTIVESCompute the fees involved in buyingand selling stocks.Become familiar with the basicvocabulary of stock trading.Financial Algebra Cengage Learning/South-WesternSlide 81Slide 83Chapter 1Financial Algebra Cengage/South-WesternHow do you buy and sell stock?Key Terms Slide 82stockbrokerbroker feecommissiondiscount brokerat the marketlimit ordernet proceeds How has the Internet changed the way stock istraded?Financial Algebra Cengage Learning/South-WesternSlide 84Financial Algebra Cengage Learning/South-Western21

Banking8/19/2013Example 1Lee made two trades through his online discountbroker, We-Trade. We-Trade charges a fee of 12 pertrade. Lee’s first purchase was for 3,456 and hissecond purchase, later in the day, was for 2,000. Howmuch did he spend on the day’s purchases, includingbroker fees?Financial Algebra Cengage Learning/South-WesternSlide 85Example 2CHECK YOUR UNDERSTANDINGGarret made two trades in one day with his discountbroker that charges 7 per trade. Garret’s firstpurchase was for 1,790 and his second purchasewas for 8,456. How much did he spend includingbroker fees?CHECK YOUR UNDERSTANDINGJared has a portfolio worth 500,000. He made 10telephone trades during the past year, buying andselling 50,000 worth of stock. What was his totalbroker fee for the year? Express his total broker feealgebraically if Jared had made b automatedtelephone trades.Adriana purchased 7,000 worth of stock from abroker at Tenser Brokerage. The current value ofAdriana’s portfolio is 11,567. What broker feemust she pay?Slide 87Chapter 1Financial Algebra Cengage Learning/South-WesternSlide 86Financial Algebra Cengage Learning/South-WesternSlide 88Financial Algebra Cengage Learning/South-Western22

Banking8/19/2013EXAMPLE 3Erin purchased 23,510 worth of stock and paid herbroker a 1% broker fee. She sold when the stock priceincreased to 27,300, and used a discount broker whocharged 21 per trade. Compute her net proceeds.Slide 89Financial Algebra Cengage Learning/South-WesternEXAMPLE 4Johan purchased stock six years ago for x dollars andpaid a 2% broker fee. He sold that stock yesterday fory dollars and paid a discount broker 35 for the sale.Express his net proceeds algebraically.Slide 91Chapter 1Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGYolanda purchased stock for 7,000 and paid a 1.5%broker fee. She sold it for 6,325 and paid a 0.5%broker fee. Compute her net proceeds.Financial Algebra Cengage Learning/South-WesternSlide 90CHECK YOUR UNDERSTANDINGRob purchased stock for p dollars and paid a flat 40broker fee. Rob needed money for a homeimprovement so he sold it at a loss, for h dollars, plusa 1% broker fee. Express his net proceedsalgebraically.Slide 92Financial Algebra Cengage Learning/South-Western23

Banking8/19/20131-8Key TermsSTOCK SPLITS OBJECTIVESCalculate the post-split outstanding sharesand share price for a traditional split.Calculate the post-split outstanding sharesand share price for a reverse split.Calculate the fractional value amount that ashareholder receives after a split.Slide 93Financial Algebra Cengage/South-WesternWhy do corporations split stocks? What are some reasons a stock might split? How do you think the perception of changemight lead to an increase in sales and marketprices?Slide 95Chapter 1Financial Algebra Cengage Learning/South-WesternSlide 94stock splitoutstanding sharesmarket capitalization or market captraditional stock splitreverse stock splitpenny stockfractional part of a shareFinancial Algebra Cengage Learning/South-WesternExample 1On December 4, John Deere Corporation (DE)instituted a 2-for-1 stock split. Before the split, themarket share price was 87.68 per share and thecorporation had 1.2 billion shares outstanding. Whatwas the presplit market cap for John Deere?Slide 96Financial Algebra Cengage Learning/South-Western24

Banking8/19/2013CHECK YOUR UNDERSTANDINGA corporation has a market capitalization of 24,000,000,000 with 250M outstanding shares.Calculate the price per share.Financial Algebra Cengage Learning/South-WesternSlide 97CHECK YOUR UNDERSTANDINGQualComm, Inc. instituted a 4-for-1 split in November.After the split, Elena owned 12,800 shares. How manyshares had she owned before the split?Slide 99Chapter 1Financial Algebra Cengage Learning/South-WesternExample 2What was the post-split number of shares outstandingfor John Deere?Slide 98Financial Algebra Cengage Learning/South-WesternEXAMPLE 3What was the post-split market price per share forJohn Deere in Example 1? How many shares areoutstanding? Did the market cap change after thesplit?Slide 100Financial Algebra Cengage Learning/South-Western25

Banking8/19/2013CHECK YOUR UNDERSTANDINGIn October, Johnson Controls, Inc instituted a 3-for-1split. After the split, the price of one share was 39.24. What was the pre-split price per share?Slide 101Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGA major drugstore chain whose stocks are tradedon the New York Stock Exchange was consideringa 2-for-5 reverse split. If the pre-split market capwas 1.71B, what would the post-split market capbe?Slide 103Chapter 1Financial Algebra Cengage Learning/South-WesternEXAMPLE 4On October 15, Palm, Inc. instituted a 1-for-20 reversestock split. Before the split, the market share price was 0.64 and there were 580,000,000 shares. What wasthe post-split share price and number of shares?Slide 102Financial Algebra Cengage Learning/South-WesternEXTEND YOUR UNDERSTANDINGSuppose that before a stock split, a share was sellingfor 2.35. After the stock split, the price was 7.05 pershare. What was the stock-split ratio?Slide 104Financial Algebra Cengage Learning/South-Western26

Banking8/19/2013EXAMPLE 5Steve owned 942 shares of Graham Corporation. OnJanuary 3, a 5-for-4 split was announced. The stockwas selling at 56 per share before the split. How wasSteve financially affected by the split?Financial Algebra Cengage Learning/South-WesternSlide 105Financial Algebra Cengage Learning/South-WesternSlide 106Key TermsDIVIDEND INCOME Understand the concept of shareownerssplitting the profit of the corporation theyown.Compute dividend income.Compute the yield for a given stock.Compute the interest earned on corporatebonds.Chapter 1Gabriella owned 1,045 shares of Hollow Corporationat a price of 62.79. The stock split 3-for-2. How wasGabriella financially affected by the split?1-9OBJECTIVESSlide 107CHECK YOUR UNDERSTANDINGFinancial Algebra Cengage/South-WesternSlide 108dividenddividend incomeincome stockyieldgrowth stock preferred stockcommon stockcorporate bondface valuematuresFinancial Algebra Cengage Learning/South-Western27

Banking8/19/2013If shareholders own a corporation, are theyentitled to some of the profits? Corporations reinvest part of their profits intonew products and services. Do you think this is agood business strategy?Slide 109Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGJacques purchased x shares of a corporation thatpays a y dollar annual dividend. What is his annualdividend income, expressed algebraically?Slide 111Chapter 1Financial Algebra Cengage Learning/South-WesternExample 1Roberta is considering purchasing a common stockthat pays an annual dividend of 2.13 per share. Ifshe purchases 700 shares for 45.16 per share, whatwould her annual income be from dividends?Slide 110Financial Algebra Cengage Learning/South-WesternExample 2Elyse owns 2,000 shares of a corporation that pays aquarterly dividend of 0.51 per share. How much shouldshe expect to receive in a year?Slide 112Financial Algebra Cengage Learning/South-Western28

Banking8/19/2013CHECK YOUR UNDERSTANDINGMonique owns x shares of stock. The quarterlydividend per share is y dollars. Express Monique’sannual dividend amount algebraically.Slide 113Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGYou bought x shares of a stock for y per share. Theannual dividend per share is d. Express the percentyield algebraically.Slide 115Chapter 1Financial Algebra Cengage Learning/South-WesternEXAMPLE 3Kristen owns common stock in Max’s Toy Den. Theannual dividend is 1.40. The current price is 57.40per share. What is the yield of the stock to the nearesttenth of a percent?Slide 114Financial Algebra Cengage Learning/South-WesternEXAMPLE 4One share of BeepCo preferred stock pays an annualdividend of 1.20. Today BeepCo closed at 34.50 witha net change of 0.50. What was the stock’s yield atyesterday’s closing price?Slide 116Financial Algebra Cengage Learning/South-Western29

Banking8/19/2013CHECK YOUR UNDERSTANDINGOne share of Skroy Corporation stock pays an annualdividend of 1.55. Today Skroy closed at x dollars witha net change of 0.40. Express the yield at yesterday’sclose algebraically.Slide 117Financial Algebra Cengage Learning/South-WesternCHECK YOUR UNDERSTANDINGA corporation was paying a 2.10 annual dividend.The stock underwent a 3-for-2 split. What is the newannual dividend per share?Slide 119Chapter 1Financial Algebra Cengage Learning/South-WesternEXAMPLE 5A stock paid an annual dividend of 2.14. The stocksplit 2-for-1. What is the annual dividend after the split?Slide 118Financial Algebra Cengage Learning/South-WesternEXAMPLE 6Adam bought a 1,000 corporate bond in the LabateCorporation. The bond pays 5.7% interest per year.How much does Adam receive in interest each yearfrom this bond?Slide 120Financial Algebra Cengage Learning/South-Western30

Banking8/19/2013CHECK YOUR UNDERSTANDINGIf Adam holds the bond from Example 6 for 11 years,how much will he receive in total interest?Slide 121Chapter 1Financial Algebra Cengage Learning/South-Western31

STOCK MARKET TICKER Understand stock market ticker information. Banking