This project is a preamble to our discussion of stock valuation and will provide background for our future discussion on risk and return section of the course.
Project Objectives:
After completing this project you should:
- Understand what determines and drives stock prices
- Know the differences between the NYSE and NASDAQ
- Understand how a trade happens on the NYSE
- Understand what indexes are and what information they provide
Project Instruction:
Visit different web sites, carefully read the information and answer the questions that follow each site. You may need to copy and paste the web sites into your web browser and you will need adobe Reader (free at www.adobe.com) to view some of the content. Your answers should be typed in 2-3 pages (font 12, double space), organized proof read and show that you understood the material. DO NOT cut and paste, or in any way copy, information from the web sites. You will be graded based on thoroughness of your answers, your level of understanding, and effort. Responses that are grammatically incorrect, misspelled, or have typos will receive a grade no higher than 75%.
Report Format: list answers for each question in each step.
Step 1: Optional web sites: Visit different web sites of your choice and search for the Financial Markets, Financial Averages and Indexes, Bull and Bear Markets. Then answer the followings one by one.
1. Describe the difference between the NYSE and NASDAQ.
2. Define capitalization (or market capitalization).
3. Describe the importance of the DOW JONES Index, What this index represents?
4. Describe the importance of the NASDAQ Index, What this index represents?
5. Describe the importance of the Russel 2000 Index, What the index represent?
6. What information does the S&P 500 Index provide to investors?
7. What causes swings in the stock market, according to the article(s) of your search? Is it wise to quickly react to these swings?
The following chapters are posted on the class web site
Step 2: Visit http://www.nyse.com/pdfs/nyse_chap_01.pdf and answer the following one by one. Why do companies sell stocks and bonds
1. What are some characteristics of the two US securities exchanges the NYSE Group Inc. operates?
Step 3: Visit http://www.nyse.com/pdfs/nyse_chap_02.pdf and answer the following one by one.
1. What does a trading license allow you to do?
2. What role do floor brokers play on the exchange floor?
3. What role do specialist play on the exchange floor?
4. What is the consolidated tape?
Step 4: Visit http://www.nyse.com/pdfs/nyse_chap_04.pdf and answer the following one by one.
1. In 3 words, what determines the price of an individual stock?
2. What are the four main categories of information (or events) investors should consider before buying and selling at a specific price? (four broad categories)