Professional Documents
Culture Documents
a written report for the client and a presentation of the results to the client.
The presentation to the client must include visuals (graphs) and highlight the key results of the report. It should be no longer than 10 minutes and be given to help the client understand the report and the portfolio. Criteria for the Presentation Mark Group Involvement: Visuals: Coherence: Organization: Was the presentation organized and completed within the allotted time to show that it had been practised? Did each group member participate? Were the visuals professional and easy to read and understand appropriate headings, properly labeled and related to the portfolio selection? Did the presentation explain clearly to the client the choices made and how they met the needs of the client? Did the presentation reveal the underlying organizational structure used in the analysis and investment decisions?
Report: 80% of the Total Mark The report should have a table of contents and be organized into the following sections. A. B. C. D. E. Investor Personality Profile Investment Goals Asset Allocation Model Investment Decisions Portfolio Records and Monitoring
A. Investor Personality Profile (10%) You have the freedom to create your fictitious client but you must choose either a post-secondary education (for a child) or retirement as his or her investment goals. Your client may be any age, sex or marital status you wish. You determine the persons occupation, savings, income, number of children, and RRSPs. As you do the investor profile activity, try to answer the questions as your client would. Keep track of the questions and answers as part of the profile. Most programs name the investor personality type. When you are finished you must write a profile of your client. Criteria: Has the team created a realistic profile of the client and provided answers to the kinds of questions a financial planner would ask? Is the goal clearly stated in terms of time? B. Investment Goals (20%) In this section you will state specifically how much money the client will need to meet his or her investment goal and how much the client must save weekly, monthly or yearly to meet that goal. You will use online calculators to determine these numbers. Criteria: Has the team stated the goal clearly and given the dollar amount required to meet it? Has the team offered clear and objective evidence to explain the monthly savings required to meet the goals? Has the team properly referenced all sources?
C. Asset Allocation Model (10%) In this section, you use the investor profile to develop an asset allocation model dividing the investments into cash, fixed income and equity. Explain your choice. Criteria: Has the team shown an understanding of risk, liquidity, return and time frame in selecting an asset allocation? Has the team offered clear and objective evidence to support their asset allocation? D. Investment Decisions (40%) This section recommends specific investments to be part of the asset allocation for the portfolio. These must be real investments and the costs of acquisition should be identified. There is no limit on the number of investments chosen but each should be chosen for a specific reason. Criteria: Does the team have specific investments name, institution, costs, etc.? Does the team offer reasons why one investment was chosen over another? Is there diversity within the category and a reason for that diversity? Do one or more of the choices reflect research and a desire to try something different and less traditional? E. Portfolio Records and Monitoring (20%) This section recommends a method by which the client can record and monitor his or her investments. It also includes detailed instructions and samples of how to use the program and evaluate the reports generated by the program. Criteria: Does the team offer reasons for choosing the program they did? Reasons should include: how it handles transactions, reports, returns, and calculates returns. Has the team included printouts to support these reasons?
Random, disorganized presentation with no evidence of structure for analysis and investment decisions
Some evidence of a structure for analysis exists but some information or steps are missing
Presents a coherent structure for analysis and investment decisions but is sometimes difficult to follow
Description clearly and concisely includes: -the choices and reasons for investments -names, specific investments, institution (reflects research) -gives detailed information about how they meet client needs
Assignments, notes, other handouts and learning materials presented in class not included in portfolio report Few, if any, homework assignments included
Some assignments, notes and classwork included in investment portfolio report Portfolio is organized
Classwork, assignments and notes included in investment portfolio report Portfolio is organized Portfolio report indicates how client will be assisted by your investment team
Visuals
All elements of visual presentation were evident: - Clear graphics - Appropriate labels - Well organized - Good use of colour, space Explain clearly and concisely the choices for investments and give detailed information about how they meet client needs Presents a systematic, coherent, organized structure for the analysis and investment decisions
Coherence
No explanation of choices
Explanation of client choices for investment not supported by information on how they met client needs Some evidence of a structure for analysis exists but some information or steps are missing
Explain the choices for investment and give some information about how they met client needs
Organization
Random, disorganized presentation with no evidence of structure for analysis and investment decisions
Presents a coherent structure for analysis and investment decisions but is sometimes difficult to follow
Financial Terms
In the space provided, write the letter of the term the statement defines. A. A place that brings together users and providers of capital. B. A plan for spending and saving. C. A loan made to a company or government for a fixed amount of interest. D. The value today of a future payment discounted at some appropriate discount rate. E. A decrease in the cost of goods and services over a period of time resulting in an increase in the purchsing power of the dollar. F. A type of investment contract that pays you regular income, usually after retirement. G. A pool of money invested in a range of investments. H. A portion of a company's profit paid to shareholders. I. Money that has been borrowed and must be repaid, with interest, by a set date. J. An increase in the cost of goods and services over a period of time, resulting in a decrease in the purchasing power of the dollar.
1.Bond 2. Stock Market 3.Budget 4. Debt 5. Inflation 6. Deflation 7. Present Value 8. Mutual Fund 9. Annuity 10. Dividend
Mathematical Skills - 1
1. The accumulated value of $1 000 earning interest at 6% per annum compounded annually for 10 years is closest to which of these values? $1 790 a. b. $1 850 $1 920 c. $2 150 d. 2 If money earns interest at the rate of 8% per annum compounded annually, then the present value of a $15 000 payment due in 15 years is closest to: $3 680 a. $4 262 b. $4 729 c. $6 919 d. 3. What is the accumulated amount of $14 000 growing at 5% per annum compounded monthly for 10 years? a. $19 287 $21 652 b. $22 747 c. d. $23 058 4. What amount now must be invested at 9% per annum compounded monthly to accumulate to $100 000 in 30 years? $5 034.75 a. b. $6 788.60 $7 991.87 c. $8 275.60 d. 5. In how many years will an investment of $8 000 grow to $20 000 if it grows at the rate of 7% per annum? 12.0 yrs a. 12.5 yrs b. 13.0 yrs c. 13.5 yrs d. 6. It costs $4 000 to purchase a bond that, 20 years from now, pays $10 000. What is the interest rate that the bond pays if it compounds annually? 4.69% a. 4.93% b. 5.09% c. 5.62% d. 7. What is the value of the sum (1.06) + (1.06)2 + ...+ (1.06)20? 38.99 a. 39.99 b. 40.99 c. 42.39 d.
Mathematical Skills - 2
1. Which expression represents the accumulated value of $P earning interest at i% per annum, compounded annually, for n years? a. b. c. d. i n 100 ) i n P (1+ 100 ) i n P (1+ 100 ) i n P (1+ 100 ) P (1+
2. Which expression represents the amount that must be invested now at i% per year, compounded annually, to accumulate to $X in n years? a. b. c. d. X(1+ i n 100 ) i n X(1+ 100 ) n X(1+ i )
n X(1+ i )-
3. Which expression represents the accumulated amount $P growing at i% per annum, compounded monthly, for n years? a. b. c. d. i 12n 12 ) i 12n P (1+ 1 200 ) i -12n P (1+ 12 ) i -12n P (1+ 1 200 ) P (1+
4. Which expression represents the amount that must be invested now at i% per year, compounded monthly, to accumulate to $X in n years? a. b. c. d. i 12n 1 200 ) i -12n X(1+ 12 ) i 12n P (1+ 12 ) i -12n P (1+ 1 200 ) X(1+
5. Which expression represents the number of years it would take for an investment of $P, compounding at i% per annum, to grow to $X? a. logX + logP i log ) (1100 logX + logP i P (1+ ) 100 logX - logP i P (1) 100 logX - logP i P (1) 100
b.
c.
d.
6. It costs $P to purchase a bond that , n years from now, pays $F. Which expression gives as a percentage the interest rate the bond pays if it compounds annually?
a.
b.
1 100(
c.
)+1
d.
)1
7.Which formula gives the sum of the series a + ar 2 + ... + ar n? a. a(r n+1+1) r-1 a(r n+1-1) r-1 a(r n+1+1) r+1 a(r n+1-1) r+1
b.
c.
d.
amount in bank account = $500 has a Visa good credit rating attends University is a medical student; will graduate with 4 more years of education
10
John Doe Step 1 Investor Personality Profile This gentleman is saving for his retirement. Client:Doe, Jon Marital Status: Single Monthly Income: $3 500 Yearly Income: $42 000 Occupation: Technical Engineer Spending Habits (monthly): q apartment rent $1 000 q food $325 q entertainment $450 q public transportation $60 q TOTAL MONTHLY $1 835 q TOTAL YEARLY $22 020 Saving Patterns: invests $700 every 6 months, $1 400 every year Christopher and Darcie Maloney Step 1 Investor Profile This couple is saving for their retirement. Name: Christopher Maloney Age: 35 Marital Status: Married with 1 child Occupation: C.E.O. of Maloney Pharmaceutical Monthly Income: After taxes: $28 333.05 Spending Habits: Putting money into diverse investments Saving Patterns: He puts 15% of his salary into savings = $24 083.10 after saving. *After giving another 5% to his wife for her savings, Mr. Maloney is left with $22 666.39 Expenses and Other Relevant Factors: q food $75/month q clothing $200/month q entertainment $100/month q child care $60/month q child necessities $100/month q water/heating/electricity $250/month q phone bill $25/month q car payments (leasing a BMW) $120/month q hygiene $150/month *This is what Mr. Maloney spends himself Grand total of monthly spending: $1 320 Name: Darcie Maloney Age: 33 Marital Status: Married with 1 child Occupation: Homemaker Monthly Income: $28 333.05 Spending Habits: Spends money mostly on necessities, but likes to occasionally go on a shopping spree. Saving Patterns: Puts 5% of her husbands monthly income in a savings account of her own. Expenses and Other Relevant Factors: q food $75/month q clothing $250/month q entertainment $100/month q child care $60/month q child necessities $100/month q water/heating/electricity $250/month q phone bill $25/month q car payments (leasing a BMW) $120/month q hygiene - $150/month * This is what Mrs. Maloney spends herself Grand total of monthly spending: $1 370 Money left for him and his wife after spending are both totalled. The Maloneys are left with: $19 976.39
11
q q
q q q
She has just completed her general degree and is aiming towards completing the additional four years of medical school. It will cost $20 000 a year to go to medical school. Our client will get no help from family and she wants to pay for all of her schooling herself. At her current salary, she cannot afford this. Therefore, she has decided to take two years off and work as a waitress full-time. The salary works out to $2 000 per month (again, this includes tips). Our clients current monthly expenses are $600. She shares an apartment with a friend and does not own a car. If she continues to live in the same conditions while earning $2 000 per month, this will mean that she has $1 400 per month to invest. The client hopes to have summer jobs and part-time jobs during her next four years of medical school, which will earn her approximately $10 000 per year. This means that she needs $40 000 in her full-time job in the two years she will work. $1 400 per month to invest times 24 months equals $33 600. Therefore, she is a little short of her goal. Therefore, she must invest some of her money as she is earning to get it closer to $40 000.
Sarah Smith Step Two Investment Goal Sarah Smith, who was profiled in Step 1, is 14 years old and needs to save $22 000 (she had saved $2 000 already) for her postsecondary education in the next five years. As shown in this excerpt, the students have determined that she will need to invest $360 per month earning 6% per annum to achieve her goal. Actually this investment would yield a little over $25 000 and so it would be enough. It appears that the students just divided the $22 000 by 60 months. Because the time line is so short (i.e. 5 years), this method yields a sufficiently close estimate. The goal of Sarah Smith is to further her education at her university residence. Sarahs dollar value of this goal is to achieve furthering her education and her dollar value is $24 000 in five years. Sarah Smith maintains a job in which she makes $360 monthly. With this incoming money, she can have the sufficient amount of money to continue to invest wisely with New Era and have a sufficient amount for university residence. Sarahs yearly income is $4 320, so she should be able to achieve her dollar value and further her education. Her increase in investment per year is 10%. Sarahs compound interest or increase in value of equities or mutual fund per year is 6%. All these factors, including her job and how much money she makes per year, and also her investments, Sarah will definitely achieve her investment goal and further her education at her university residence of choice. Jon Doe Step 2 Investment Goals Do you remember Jon Doe, the 37-year-old bachelor profiled in step 1? Well, he wants to retire between 60 to 65 years of age with accumulated savings between $500 000 and $750 000. He plans to reach that goal by saving $700 every 6 months. Its a stretch, but he can do it if he can sustain an annual return of 15%. Good luck! Our clients goal is to be able to retire with a comfortable amount of money to live off of. After having numerous discussions with our client, we have learned that he wishes to retire at a healthy 60 to 65 years of age. He doesnt have many plans yet for a family but he is keeping it as a possibility. With the aide of our sessions, our client has decided that he would like to retire with a total savings of $500 000 to $750 000. In order to reach this goal our client is willing to invest $700 every six months.
12
The Maloneys Step 2 Investment Goals The married couple, the Maloneys, have 18 years to accumulate $69 000 for their daughters education. These students have divided $69 000 by 18 to determine that the Maloneys will need to save $319.44 per month. What a surprise they will get when they find they have more than a quarter million dollars! The students have not understood how compounding affects the accumulated value of the investment. This is the main hurdle that students must scale in understanding how money grows in value when invested over a long period of time. 2 a. Our clients decided to invest in a RESP for their child, so when he is done high school, he will have money for postsecondary education. b. The amount of money that will have been invested by the time the child is ready to use it will be $69 000. c. In total over an 18-year period, our clients will have saved $69 000. That breaks down to $3 833.33 per year. Therefore, every month our clients will put away $319.44. To determine how much he will need for various universities, this student undertook some research on the Internet. d. The money increases 0.97% per month, and 11.6% per year.
Tuition Books Supplies Residence $4 030 $3 438 $5 171 $6 127 $1 000 $2 450 $800 $1 500 $200 $200 $200 $200 At Home $6 000 At Home $6 200
*The tuition fees refer to the fees paid by engineering students. **All costs are the projected annual cots. ***Both the University of Ottawa and Carleton University are located in Ottawa, so trips home and residence costs are omitted.
13
We have already decided that our clients investments must be low-risk. She cannot afford to lose any money because if she cant go to medical school, she wont become a doctor. The best types of investments for this situation, then, are Guaranteed Investment Certificates or Canada Savings Bonds. CANADA SAVINGS BONDS GUARANTEED INVESTMENT CERTIFICATES r low risk r low risk r better return rate than bank accounts (5%) but no more r better return rate than bank accounts (5%) but no more risky risky r cashable on the first of every month r can be kept for a year, as opposed to 5 years r cashable (1 time per month) (The consequences of gaining in a high risk situation are that she will be happy but it wont make too much of a difference, and the consequences losing are that she will never be a doctor. It is certainly not worth the risk.) We have decided upon Guaranteed Investment Certificates. Our clients money may not grow to $40 000, but she cannot afford to lose in a higher risk situation. She may have to get a small student loan, however this would not be hard because she has a good credit rating and could pay the bank back when she becomes a doctor. ** (We later found out that part of our assignment is to invest $3 000 in stocks and $3 000 in mutual funds for our client, and we assume that these investments are in addition to the money she will have to invest described above.)**
Sarah Smith Step 3 Asset Allocation Model Sarah Smith needed $24 000 for her post-secondary schooling but she is only 14 years old and has more time to accumulate. The students have made an effort to balance the need for strong growth with Sarahs need for some liquidity. They have thought carefully about the risks and rewards of various investment types. Asset allocation: method used to divide a portfolio into different classes of investment. This should reflect the investor personality of the client. Sarah Smith is a very young investor who is looking to put away money long term (five years) in order to further her savings for post secondary education. Sarah Smith feels her choices are plentiful, and has decided that liberal diversification would best fit her investment goal of $24 000. Her investment total is $2 000 right now, and is dispersed throughout the asset allocation triangle, with most appropriate investments significantly chosen to suit the clients investment choices wishes. Within the speculative investments, New Era has chosen to invest only 5%, $100 of the total cash equivalent into this form of equity. We feel that Sarah Smith is a very young girl who would maybe choose to chance a little sum of money, because her income per month is steady, and the longterm investment will grow out the rocky futures this investment might have. This is the riskiest of investments, however, the rate of return is exceptionally high. New Era felt that the majority of the investment, 75% or $1 500, would be spent wisely on the Equity assets of the asset allocation categories. Stocks and mutual funds can grow in value, and have excellent long term potential. This is one of the higher forms of risks, but our client is young, and the chances of receiving high return are favourable. Fixed income is a source of regular investment income, and there is a guaranteed rate, which remains the same over time, therefore 15%, or $300 is placed in this category. Sarah Smith can know that her money is growing slowly, and will always be there in case of emergencies. To complete total diversification, there is a 5% or $100 investment within the Cash and Cash equivalents category. This offers Sarah Smith the comfort of getting to her money whenever she feels she needs access to her investment. This is the easiest form of investment to place back into liquid, and is the safest category to invest in. However, only a small amount of money is allocated here, because these assets produce the lowest returns.
14
Although all of Sarah Smiths investments are sound and are chosen specifically, New Era feels this client has great outstanding potential, because she is so young, and continuously adds to her investment monthly. Great diversification is within our clients portfolio because our client requested to maintain assets within all locations. Also, this lessens her great loss significantly, because the safest way to cut losses is to spread money around and not put all her eggs in one basket. Jon Doe Step 3: Asset Allocation Model Jon Does investment advisory group, who call themselves the Start Smart Investors Group want to help Jon (who is now 37) retire somewhere between 60 to 65 years of age with accumulated savings between $500 000 and $750 000. They have chosen to invest his first years savings of $1 400 in stocks and mutual funds. Their rationale is given below. Our client has chosen to invest a total $1 400.00 in stocks and mutual funds per year. We decided from this $1 400.00, we would split the money as follows, $800.00 for stocks and $600.00 for mutual funds. Since our client is fairly young, we have decided that it would be good to invest mostly $800.00 in stocks. This is also because he has enough time to get back to his financial position, if, by chance, he does lose money from these investments, even though we have reasonably confident in our choices. Now thinking for the future, we have also invested our clients money in mutual funds ($600.00) that are RRSP eligible. This is so our client has a healthy future and reach his retirement goal of $500 000-$750 000 to retire off of. The reason he has only invested $1 400.00 per year is to keep open the option to have a family. The Maloneys Step 3: Asset Allocation Model Burgeon Financial is the financial advisory group employed by the married couple, the Maloneys, who have 18 years to accumulate $69 000 for their daughters education. Since Burgeon Financial was concerned about excessive risk, they chose to put money into fixed income instruments and mutual funds. With our clients, we came to the decision that putting their money into a fixed income would be best. We feel that this is the best asset allocation for them because it generally offers higher return than cash and saving accounts. They provide a source of regular investment income, which remains fixed over time, which is basically fixed interest. It also is an investment with less risk. So, basically, our clients wont be losing their shirts if anything were to happen to the investments. As we mentioned before, consistency of the stocks we chose is important. This is because we need stock investments that arent choppy, in other words, havent had major increases, then major decreases in earnings. This is to ensure that our clients money is not at risk.
15
16
Investors Dividend the NAVPS is $16.34. The reason for the stocks chosen and mutual funds chosen are explained below. We chose the Ballard stock for investing because they are coming out with new technology, for instance they are developing new environmentally friendly power sources. New technological power source is their new Mark 900 fuel cell power module for automobiles, this is low costing and very efficient. We felt that this power source discovery could put up the price of their stock. We chose Irwin Toy Ltd because we saw many commercials of new toys from babies to teenagers. These toys may get popular, so more and more consumers would buy them, potentially increasing the stock price. The reason for choosing Printera was so the client could have a small stock that he would not lose much money but continue to make some. We chose two types of mutual funds; they are Canadian Bonds and Canadian High Income Balanced fund. This is because at the moment Canadian Bonds are doing the best in returns at 3.5% in three months. The reason for the other mutual fund High Income Balanced fund is it follows close by at a return percentage of 3.4%. Now we chose Acuity Pooled Fixed Income because it had the highest rate of return in the Canadian Bonds area at 8.1% in three years, which is low risk with high return. The next fund out of the same area was Optima Canadian Fixed Income Pool; this also had a high rate of return at 7.1% in three years another low risk, high return fund. The mutual fund out of the Canadian High Income Balanced was Investors Dividend. We chose this fund because it also had a high rate of return at 7.2% in three years. This is also a back up, just in case, for our client and we also chose it to provide variety for our client. All these mutual funds are RRSP eligible. Now the way we invested the $800.00 in stocks are in this manner. Stock Ballard Power Systems Inc. Irwin Toy Ltd. Printera Corporation The way we invested the $600 in mutual funds was like this: Mutual Fund Acuity Pooled Fixed Income Optima Canadian Fixed Income Pool Investors Dividend Net Assets Value Per Share (NAVPS) $11.48 $9.18 $16.34 Shares Bought 18 20 12 Total $206.64 $183.60 $196.08 Share Price $157.00 $5.00 $0.53 Shares Bought 2 75 235 Total $314.00 $375.00 $124.55
People often think that penny stocks offer less risk because their share values are smaller. They fail to realize that its the percentage increase or decrease that determines the gain or loss. The Maloneys Step 4: Investment Recommendations Burgeon Financial suggested to the Maloneys, who have 18 years to accumulate $69 000 for their daughters education, that they put their money into fixed income instruments and mutual funds. However, they seem to have chosen stocks on the basis of growth potential, suggesting that they may not have understood what is meant by fixed income instruments. To its credit, Burgeon Financial read some analyst reports and charts of company earnings for informed stock selection. With our clients, we decided to invest in several stocks and mutual funds. The four stocks we decided to invest in are: Edispatch.com Wireless Data (we invested in 100 shares/$5.70), ACD Systems Int. (invested 75 shares/$11.10), Weatherford Oil (Invested in 19 shares/$44.50), and Viscogliosi Bros. (invested in 50 shares/$14.94). We chose these stalks because we read over analyst reports that gave us future outlooks for each company, and we also read the charts of company earnings for over certain periods of time. Each stock we chose is with in the technologies industry, we invested in this particular industry because over the next 18 years technology will continually be improving, most likely pushing the earnings upwards for the companies. We did choose an Oil Company, which has more risk, but that was basically done just to give a variation of investment, and since this is a long-term investment, our clients will have time for it to jump up and down. Since our clients are investing long-term, we looked at the 5-year charts to get a rough idea of how consistent each stock was. Consistency was one of the most important factors in choosing the stocks we chose. Aside from investing in stocks, we also decided to invest some money into mutual funds. Again, from further research we chose to invest in funds that were consistent, yet had increasing earnings. We invested 8 shares at $78.85 in Advantage Series Investors group, we invested 1 share at $194.93 in Elite Equity (Investors), we invested 150 shares at $10.86 in Canadian Equity (investors), and we also invested 25 shares at $22.32 in Fidelity Cda. (Life insurance).
17
18
Part II of the investment report of Jane Browns financial advisory group shows how they report the changes in the value of her portfolio. Stocks Stock RND TRZ CTR.A PWT FSH Subtotal Value Last Month $100.00 $301.00 $500.00 $551.25 $545.00 $2 997.25 Change in Value This Month -$225.00 -$7.00 -$122.50 -$37.50 -$30.25 -$422.25 Purchase Price $100.00 $301.00 $500.00 $551.25 $545.00 $2 997.25 Mutual Funds Mutual Fund Empire Fin Elite Equ Aim FundsCdn Bal Scotia Funds Cdn BI Chp Talvest Funds Bond Subtotal Value Last Month $779.72 $714.60 $737.60 $757.77 $2 989.69 Change in Value This Month -$15.84 -$10.20 -$17.28 +$5.35 -$39.97 GICs and Cash Investment Since Last Month Cash (Including interest and dividends received) GIC Subtotal Summary of Changes in Investments Form of Investment Stocks Mutual Funds GICs and Cash Total Investments Sarah Smith Step 5: Portfolio Records & Monitoring The New Era Investment Group who is helping Sarah Smith accumulate $24 000 for her post-secondary education to begin five years hence, has provided their client with the weekly updates of the portfolio value shown below. Over the past two weeks our stocks have risen and lowered in value. Our highest profit that we could have earned if we were to sell our stocks was on October 13, where we would have had earned $355.90 in profit. Our lowest point was on October 7. We would have lost $199.03. Our current investment value is $2 921.58. If we were to sell now, we would loose $78.42. These values are not set in stone, out stocks are constantly rising and lowering. We need to wait until we think that the stock have reached their highest potential, and then sell.
19
Change in Value Since Purchased -$225.00 -$7.00 -$122.50 -$37.50 -$30.25 -$422.25
Dividend Received 0 0 0 0 0 0
October 1, 2000 Name Cara AnV DomcoTarkett Micro Tech Janna Sys. Ecudran Min. Magnotta Individual Stock Value $4.30 $7.00 $1.70 $63.45 $1.15 $0.90 Total Number of Stocks Purchased October 7, 2000 Name Cara AnV DomcoTarkett Micro Tech Janna Sys. Ecudran Min. Magnotta Individual Stock Value $4.05 $5.85 $1.70 $65.00 $1.08 $0.95 Total Number of Stocks Purchased October 13, 2000 Name Cara AnV DomcoTarkett Micro Tech Janna Sys. Ecudran Min. Magnotta Individual Stock Value $4.70 $9.90 $1.70 $65.00 $1.05 $0.95 Total Number of Stocks Purchased Jon Doe Step 5: Portfolio Records & Monitoring Jon Does financial advisors, the Start Smart Investors Group, display for their client the graphs showing the daily stock values for the past six months to the present, enabling Jon Doe to track the fluctuations in the values of his stocks from day to day and to examine trends. Number of Stock Purchased 250 100 250 5 419 1 $1 025 Invest. Profit Gain of Total Individual Stock Value $1175.50 $990.00 $425.00 $325.00 $439.95 $0.95 $3355.90 $355.90 Number of Stock Purchased 250 100 250 5 419 1 $1 025 Invest. Profit Loss of Total Individual Stock Value $1 012.50 $585.00 $425.00 $325.00 $452.52 $0.95 $3000.00 $199.03 Number of Stock Purchased 250 100 250 5 419 1 $1 025 Total Invest. Total Individual Stock Value $1 075.00 $700.00 $425.00 $317.25 $481.85 $0.90 $3000.00
20
21
22
Worksheet 1: Investment Teams Cont'd Group Discussion and Decision Tasks: 1. Decide on an Investment Team Name: _________________________________________ 2. Design an Investment Team logo:
23
24
10
25
Risk Risk is the degree of uncertainty about the expected return from an investment, including the possibility that some or all of the investment may be lost. With some securities, e.g., Canadian government treasury bills, there is very little risk that investors will lose any of their initial investment. With some other securities, the risk of loss can be substantial. Some people can tolerate more risk than others. Return Return is the overall profit (after taxes) that you might expect to receive from your investment either as income, in the form of interest or dividends, or as capital gains (or losses) resulting from changes in the market value of the security. The higher the expected rate of return of a security, the greater the risk. Tax implications are important in planning for maximum returns. Time Frame Time frame is the number of years available to invest. For any particular goal, the shorter the time available, the more money must be invested each month. Liquidity Liquidity is the ease with which the investment can be turned into cash, at or near the current market price. Some securities, such as mutual funds, offer liquidity by allowing investors to redeem their securities on short notice. Some investors like to be able to get their cash quickly, while others will wait.
Inflation Inflation reduces the purchasing power of money. During inflationary times, the return on investments may not keep pace with the rate of inflation, so purchasing power is decreased. A suggested guideline is to choose investments that yield the inflation rate plus three percent. Promised returns above this amount may carry high risk. Most programs on the Internet will ask you to suggest an anticipated inflation rate. Diversification Diversification is the process of reducing risk by spreading money among various types of investments. Because certain investments perform better than others in certain economic conditions, you can reduce risk by selecting investments with varied risk-return characteristics. Putting money into a variety of investments lessens the risk of loss resulting from any one investments poor performance. The Internet has many programs that allow you to assess a client's personality and create an asset allocation mix that matches that personality.
26
27
28
General Finance & Taxes Money planners, net worth, cash flow, taxes, inflation, currency conversion, financial services, etc. Financing Education How much do you need to sock away for your education, or your childs education? How does the Canada Education Savings Grant figure into the picture? Insurance Want to calculate how much life or disability insurance you need? How about how long they expect you to live? You can even check out some premiums. Investment Calculators Asset allocation, rate of return, growth, compound interest, present value, bonds, stocks, etc. Loans, Leases & Mortgages Payments, amortization, rent vs. own, lease/buy and more. Retirement Calculators For planning and enjoying retirement. (RRSP and RRIF calculators included.) More Calculators Miscellaneous calculators and links to other calculator link pages.
Example web site to visit: www.tcalc.com/calculators.htm This site asks you to input data and then does all the calculations. There are many online calculators in the above site. Online calculators require you to have numbers to input. Make sure you write down all the numbers you used or print off the input page before asking for the calculations.
29
30
Broom Hilda has discovered too late the power of compound interest. One dollar invested at an annual interest rate of 3% grows according to the table shown below. That is: After one year, the dollar has accumulated $0.03 interest, so the investment has grown to a value of $1.03. In the second year, the entire $1.03 earns interest (not just the original $1.00 invested) and so the investment has grown to $1.03 plus the interest on $1.03. So the total value is $1.03 + (.03)($1.03). Applying the distributive law, we express this as $(1.03)2. Each year the investment grows to 1.03 times its value at the end of the previous year, so the value at the end of three years is $(1.03)3. In general, the value at the end of the nth year is $(1.03)n, so the value at the end of the 1 500th year is $(1.03)1 500.
1 year
1.03
(1.03)2
The accumulated value of $10 at the end of the 1 500th year would be 10(1.03)1 500 or about $180 000 000 000 000 000 000.
31
The example above shows that the accumulated value A to which an amount $P grows depends upon two factors, the annual rate of growth i and the number of years n for which it is invested. In the example above, the accumulated value was 10(1.03)1 500, the principal was $10, the annual growth rate 3% and the period 1 500 years. Usually the accumulated amount and the principal are expressed in dollars, the growth rate as a percentage and the period in years. The accumulated value A is expressed in terms of P, i, and n in the formula: A = P (1 + i )n Accumulated Value of $1 000 growing at 6% per annum To find the accumulated value of $1 000 in 20 years growing at a rate of 6% per annum, we substitute P = 1 000, n = 20, and i = 0.06 into the formula above to obtain A = 1 000(1.06)20 or 3 207.14. That is, $1 000 growing at 6% per annum becomes $3 207.14 at the end of 20 years.
Years after the original investment This line graph shows, for a growth rate of 6%, the accumulated value of $1 000 at the end of every year for 20 years.
32
We use the' Fill Down' command to extend these formulas to the 31st row of the spreadsheet, i.e., year 30. When we display the numbers (rather than the formulas), we obtain the display below.
33
B.
This shows that $8 000 at a nominal annual rate of 19.2% compounded monthly grows to $8 800 in 6 months. C. By definition, the effective interest rate over one compounding period is i/m. Over m compounding periods (1 year), $1 will have an accumulated value of The effective (actual) interest rate per annum j is the amount of interest accumulated on $1 by year end. That is, Solving for i in terms of j and m, we obtain .
34
Growth Rate as a Percent Doubling Time in Years Growth rate X Doubling Time
4%
6%
8%
10%
12%
Internet Exploration To explore the Rule of 72 further, check out these web sites. http://www.moneychimp.com http://www.ruleof72.net
35
36
Therefore at the end of the nth year the accumulated value of $1 is of $P at the end of n years is P times as great as the expression in a, i.e.,
If we invest P times as much, the yield is P times as much. That is, the accumulated value dollars.
6. Calculate a. The effective annual rate is (1 + 0.09/365)365 1 or about 9.42% per annum. b. If n is the doubling time, then (1.0942)n = 2, so n = log 2 / log (1.0942) or about 7.7 years. It would take about 7.7 years for an overdue tax bill to grow from $1 000 to $2 000. Observe that the Rule of 72 yields an estimate of about 7.64 years, which is fairly close at this interest rate. 7. Using Your Spreadsheet a. The accumulated value of $1 000 at 9% per annum is $1 000(1.09) at the end of the nth year. See table below. b. The table below left, taken from a TI-83 Plus screen display with u(n) = 1 000(1.09) , shows the accumulated value at the end of each of year from the fourth to the tenth year. We observe that the accumulated value at the end of the tenth year is $2 367.40.
n n
37
c. The screen display above right, shows the accumulated value of $1 000 over the first 30 years. The intersection with the line y = 1 992.56 indicates that the doubling time is about 8 years. 8. Using your spreadsheet: a. The accumulated value of $1 000 after n years, growing at 9% compounded monthly is given by: $1 000(1 + 0.09/12)12 . b. The accumulated value at the end of the tenth year is $1 000(1 + 0.09/12)120 or about $2 451.36. c. The graph is similar to that in 7 c.
n
38
B. Using the Chart Menu, we obtain a graph like the one shown at right. We observe that $1 000 invested over 30 years at 6% grows to less than $6 000, while that same investment at 12% grows to about $30 000! In this case, doubling the growth rate from 6% to 12% increases the accumulated value about 5 times as much. In mathematical terms we say that accumulated value grows exponentially with the growth rate.
39
40
The amount to be repaid to you in future is called the face value. The date when repayment is due is called the maturity date. The annual rate of interest paid to you is called the bond rate. The amount you pay for the bond is called the cost price.
A Strip Bond Is Also Called a Zero Coupon Bond. Why? A typical bond such as a Government of Canada bond or a bond issued by a company has two parts:
q q
redeemable coupons that pay you, the bondholder, equal monthly or semi-annual installments of interest; the face value of the bond that is paid in cash at maturity.
Brokerage firms sometimes separate these two parts and sell the coupons to investors who want regular payments, and the bond (without its coupons) to other investors who prefer to receive the face value at a future date. The bond stripped of its coupons is a special type of bond called a strip bond. The important question for you as an investor is: How much should I pay for a strip bond that pays $10 000, say, 20 years from now if I want a yield of 6% per annum? An equivalent question is: How much money $P invested now at 6% per annum will grow to an amount A = $10 000 in 20 years? Substitution of i = 0.06 and A = 10 000 into the present value formula on the previous page yields: P = 10 000(1.06)20 or P = 3 118.05. That is, $3 118.05 should be paid now for a strip bond of face value $10 000 maturing 20 years from now to yield a 6% per annum return. Canadian financial author and former Minister of National Revenue, Garth Turner, wrote in 1997 in his 1998 RRSP Guide: How to Build Your Wealth and Retire in Comfort (page 161): In May 1994, I bought a Government of Ontario strip bond that matures on February 18, 2002. The annual yield was good at the time, 8.86%, and on maturity day that bond will be worth $194 000 inside my RRSP. But the actual cost to buy it was $100 412, which worked out to be $51.75 for every $100 worth of bond. In effect, I was arranging to double my money in less than eight years without risk.
41
To display on a spreadsheet these values on January 2 of each year for 30 years for the given yield,s we list the years from 2000 to 2030 A.D. by entering the formulas shown in column A below. We use the Fill Down command to extend these formulas to the 32nd row of the spreadsheet, i.e., year 2030. To enter the formulas in column B for the 4% yield, we observe from the time diagram above that the value of the 4% yield strip
n n bond in year n is 1 000 000 (1.04)(2030 ) or 1 000 000(1.04)( 2030). For the entry in column B of row 2 in the spreadsheet, n
is the number in cell A2 so we write 1 000 000(1.04)( 2030) as 106*(1.04)^($A2 2030). We use the Fill Down command to extend these formulas to the 32nd row of the spreadsheet (i.e., year 2030). Similarly we enter the corresponding formulas in columns C, D, E, and F (columns E and F are not shown here).
When we display the numbers (rather than the formulas), we obtain the display below.
42
On comparing columns B and D, we see that when the yield is 8%, the price of a bond in the year 2000 is less than one-third the price of a bond with a yield of 4%. Doubling the yield rate reduces the price in the year 2000 to much less than half! To be a millionaire at age 60, you must invest at age 30 either $174 110.13 in a bond with a 4% yield or only $33 377.92 in a bond with a 12% yield. You learned earlier in Lesson 2 that the yield rate of a bond has a significant effect on its price. When the yield rate is high, the bond is much cheaper. However, as the yield rate decreases, the price of the bond approaches its face value. The number of years to maturity also affects the price of a bond. The next example shows how a bond with a maturity date far in the future (called a long bond) has a significantly smaller price than a bond close to maturity. Question 2 - How Much at Age 30 Becomes a Million Using the spreadsheet for the strip bond described in Question 1, display the present value (cost) of the bond on January 2 of each year from 2000 to 2030 for each of the following annual yields: 4%, 6%, 8%, 10%, and 12%. Describe how the price of the million dollar bond changes as the maturity date approaches. Solution 2 - How Much at Age 30 Becomes a Million Using the chart menu on the spreadsheet obtained in the solution of Question 1, we obtain the graph shown below. The graph reveals that the price of the strip bond grows exponentially as the maturity date approaches. Furthermore, we observe that the graphs converge as we approach the year 2030 indicating that as the maturity date draws near, the price of the bond does not vary much for different yield rates. In fact, the differences in the bond prices for various yield rates increase as the time to maturity is increased. Can you explain why this is?
43
Million Dollar Winners! The Stewart Family Revocable Trust of Bedford today claimed the top prize from the Texas Lottery scratch-off game Weekly Grand of $1 000 a week for the next 20 years. The total prize payout comes to $1 040 000.00. This makes the 44th winner for the Texas Lotterys Weekly Grand scratch-off game since its inception in 1995.
(Austin TX)
Question 3 - Did They Really Win a Million Dollars? Grand Winner Claims Prize Worth $1 Million 1. Explain how the value of $1 040 000.00 was obtained.
2. Do you think that the prize was worth about the same as receiving a million dollars immediately? Explain why or why not. 3. If you won the prize now and you wanted to sell it for immediate cash, estimate roughly what you think you should receive in a lump sum payment. Show how you obtained your estimate. 4. The weekly payments of $1 000 can be shown on a time line like the one below. Fill in the present value of each payment, assuming a yield rate of 5% per annum compounded weekly. The first one is done for you.
5. Use a spreadsheet or the formula for the sum of a geometric series to add the present values of all the 1 040 payments in Exercise 4. 6. Compare your answer in Exercise 5 with your rough estimate in Exercise 3. Are you surprised? Explain why or why not. 7. Why do you think the Texas Lottery Commission advertises the prize value as the sum of all the payments instead of the present value of all the payments?
44
Government of Canada Bond Yields Canada 2 -year bond Canada 10-year bond Canada 30-year bond 6.25% 6.19% 5.81%
a. Calculate the cost of each of the bonds if each has a face value of $1 000. b. Which bond would you choose if you were to invest? Give reasons for your answer. 4. If money can earn 8% per annum compounded annually, what is worth more: $600 000 now or one million dollars ten years from now? Show how you obtain your answer. 5. How much money must be invested now at 6% per annum compounded monthly to grow into one million dollars: a. 15 years from now? b. 25 years from now? c. 35 years from now? 6. A 20-year strip bond with a face value of $10 000 is offered for sale when it has 15 years to maturity. a. What is the price of the bond if the yield is to be 9% per annum compounded annually? b. When the bond has only 10 years left to maturity, it is offered for sale at $3 855.43. Estimate the yield on the bond if it is then purchased and held to maturity. 7. A $100 10-year bond offers annual coupons (payments) of 5% of its face value, as shown in the time diagram below. What price should an investor pay for the bond now to obtain a yield of 6%?
8. A $1 000 20-year bond offers semi-annual coupons of 6% of its face value. What should an investor pay for the bond now to obtain a yield of 8% compounded semi-annually over the 20-year period? 9. A lottery pays $4 000 per month for life. What is the present value of this prize if money is worth 6% per annum compounded monthly and the recipient lives for another: a. 10 years? b. 20 years? c. 40 years? (Assume the first payment of $4 000 is made one month from now.) By how much is the present value of the prize increased if the recipient lives 45 instead of 40 more years?
45
46
The total present value of the annual payments is: 5(1.06)-1 + 5(1.06)-2 + ... + 5(1.06)-10 = 5(1.06)-10 [1.0610 1] / 0.06 = $36.80 The present value of the face value is 100(1.06)-10 $55.84. The present value of the bond is $36.80 + $55.84 = $92.64. Therefore, the investor should pay $92.64 now to yield 6%. 8. Construction of a time diagram, as in the solution to Exercise 7, yields the following expression for the sum of the present values of all the $60 coupons. 60(1.04)-1 + 60(1.04)-2 + + 60(1.04)-40 = 60(1.04)40 [1.0440 1] / 0.04 1 187.57 The total present value of the coupons is $1 187.57. The present value of the face value is $1 000(1.04)-20 or about $208.29. So the total present value of the bond is $208.29 + $1 187.57 or $1 395.86. Therefore, the investor should pay $1 395.86 now to yield 8%. 9. Construction of a time diagram as in the solution to Exercise 7 yields the following expression for the sum of the present values of all the $4 000 payments over a period of n years. 4 000(1.005)-1 + 4 000(1.005)-2 + + 4 000(1.005)-12n = 4 000(1.005)-12n [1.00512n 1] / 0.005 a. For n = 10, the total present value of the payments is $360 293.81. b. For n = 20, the total present value of the payments is $558 323.09. c. For n = 40, the total present value of the payments is $726 990.34. For n = 45, the present value is $745 872.67. That is, the present value is increased by $18 882.33 if the recipient lives for 45 more years instead of 40 years.
47
"I plan to put $1 000 each year into an RRSP account beginning on my birthday when I turn 20 years of age. When I turn 29, I will make my final contribution of $1 000. Then I will leave the money invested in my RRSP and let it grow, but I will make no further contributions." Q How much will Amy contribute to her RRSP between ages 20 and 30?
I want to have some spending money while Im young, so I will not open an RRSP until I reach 30 years of age. However, when I turn 30 years of age, I will put $1 000 into an RRSP account each and every year until I turn 64. Then I will make my final contribution of $1 000." Q How much will Amanda contribute to her RRSP between ages 30 and 65?
Both Amy and Amanda plan to make deposits of $1 000 into their RRSP accounts every year. Any such series of equal payments made at regular intervals of time is called an annuity. Annuities can be used to build assets or to pay off debt as in installment buying or the discharge of a mortgage. To calculate the value of Amys RRSP at age 65, we cannot simply add her $1 000 contributions together, because the contributions are made at different times and therefore have grown into different amounts. To determine the value of Amys RRSP at age 65, we must compute the accumulated value of each contribution on Amys 65th birthday and then add them together, as shown in the time diagram.
48
Amys Plan
To find the accumulated value of Amys RRSP when she reaches age 65, we sum the accumulated values of all the contributions shown in the column under Age 65, using the fact that it is a geometric series of 10 terms with first term 1 000(1.09)36 and common ratio (1.09). Accumulated value ($) = 1 000(1.09)36 + 1 000(1.09)37 + 1 000(1.09)38 + + 1 000(1.09)45 = 1 000[(1.09)46 - (1.09)36 ] / 0.09 = 338 061.23 That is, Amys RRSP will have an accumulated value of $338 061.23 on her 65th birthday. Amandas Plan
To find the accumulated value of Amandas RRSP when she reaches age 65, we sum the accumulated values of all the contributions, using the fact that it is a geometric series of 35 terms with first term 1 000(1.09) and common ratio (1.09). Accumulated value ($) = 1 000(1.09) + 1 000(1.09)2 + 1 000(1.09)3 + + 1 000(1.09)35 = 1 000[(1.09)36 - (1.09)] / 0.09 = 235 124.72 That is, Amandas RRSP will have an accumulated value of $235 124.72 on her 65th birthday. Compare the contributions made by Amy and Amanda and the values of their RRSPs at age 65. Are you surprised? Explain why or why not.
49
++
The sum of this series is 100x [1 (1.01)-60 ]. Since the total present value of all the payments should be equal to the principal, i.e., $20 000, we write 100x [1 (1.01)-60 ] = 20 000. Solving this equation for x yields x = 444.89. That is, 60 monthly payments of $444.89 will repay the loan in 5 years.
1 Note:
12% per annum compounded monthly means the interest is 1% per month and is calculated at the end of each month.
50
We use the Fill Down command to extend these formulas to the 11th row of the spreadsheet (i.e., payment #9). When we display the numbers (rather than the formulas), we obtain the display below.
The 11th row reveals that the balance before the 9th payment is $17 970.92, but after the 9th payment the (final) outstanding balance is $17 705.74. The difference, $17 970.92 $17 705.74 or $265.18, is the amount that has been allocated to the principal. Since the total payment is $444.89, then the interest included in that payment is $444.89 $265.18 or $179.71. To verify that we have entered appropriate formulas into the spreadsheet, we can use the Fill Down command to extend the formulas to the 62nd row (60th payment). We then display the numbers and check that the balance after the 60th payment is zero (or very close to it).
51
The Finances of Leasing a Car 1. 2. 3. 4. 5. 6. Reach agreement with the dealer on the purchase price of the car including optional extras. This is the cap cost. Add to the cap cost the acquisition fees that the dealer charges for administering the lease. Subtract the down payment from 2 to obtain the adjusted cap cost. Subtract the residual from the adjusted cap cost to obtain the amount to be financed. Agree to the terms of the payment schedule based on the amount obtained in 4. Calculate the monthly payments required to pay off the principal of the loan in 5, and add the GST and applicable PST to each payment.
Suppose you are interested in a car that sells for $18 995.00. You have saved a down payment of $6 000 that you want to put into a lease or purchase. A car dealer provides you with the purchase agreement and the lease agreement shown in the table on the following page. Read the terms of each offer and fill in the missing data.
52
The Lease Agreement Cap Cost: $18 995.00 Acquisition Fees: $5 286 Residual: $10 000.00 Lease Information:
q q
1. The purchase price plus tax is:$_________ 2. The amount to be financed is: $_________ 3. The monthly payment is:$_________ The accumulated value of all the monthly payments at the end of 3 years, assuming 4. that they could have been invested at 3% per annum compounded monthly, is:$ _______
5. The cap cost is: $__________________ 6. The adjusted cap cost is: $___________ 7. The amount to be financed is: $________ 8. The monthly payment (including GST and PST) is: $ _______________ 9, The accumulated value of all the monthly payments at the end of 3 years, assuming that they could have been invested at 3% per annum compounded monthly, is:$ __________
10. Write a brief report comparing the costs of purchasing and leasing for the example given here. Discuss the advantages of each form of financing a car and describe the kinds of car use that would favour each method. In this activity, we have focused on price only. Some people argue that leasing has the advantage that it doesn't tie up capital that could be invested elsewhere at higher rates of return. Tax considerations might also affect your decision whether to lease or buy.
53
D. Solutions
Suppose you are interested in a car that sells for $18 995.00. You have saved a down payment of $6 000 that you want to put into a lease or purchase. A car dealer provides you with the purchase agreement and the lease agreement shown below. Read the terms of each offer and fill in the missing data.
The Lease Agreement Cap Cost: $18 995.00 Acquisition Fees: $5 286 Residual: $10 000.00 Lease Information:
q q
9% annually compounded monthly term of 3 years The purchase price plus tax is:$21 844.25 The amount to be financed is: $15 844.25 The monthly payment is:$503.84 The accumulated value of all the monthly payments at the end of 3 years, assuming that they could have been invested at 3% per annum compounded monthly, is: $18 954.85
1. 2. 3. 4.
5. 6. 7. 8.
The cap cost is: $18 995.00 The adjusted cap cost is: $18 281.00 The amount to be financed is: $8 281.00 The monthly payment (including GST and PST) is: $302.83 9. The accumulated value of all the monthly payments at the end of 3 years, assuming that they could have been invested at 3% per annum compounded monthly, is: $11 392.63
54
2. List all the parameters (i.e., variables) that are necessary to define an annuity. 3. Is smoking really expensive? The average smoker spends about $1 700 per year on cigarettes. If this amount were deposited at the end of each year in an account earning 6% compounded annually, how much would be accumulated at the end of 20 years? 4. What monthly payments earning interest at 6.75% per annum compounded monthly will accumulate to $500 000 at the end of 25 years? 5. Calculate the monthly payments required for a $60 000 mortgage to be paid off over 30 years at 9.0% per annum compounded monthly. 6. How long would it take to accumulate: a. $1 000 000 with deposits of $2 000 per year earning 8% per annum compounded annually? b. $2 000 000 with deposits of $5 000 per year earning 6% per annum compounded annually? c. $2 000 000 with deposits of $5 000 per year earning 12% per annum compounded annually? 7. A financial institution offers consumers a choice of two different 10-year savings plans. On a fixed amount of money deposited at the beginning of every year for 10 years, Plan A pays 5% per annum interest (compounded annually) in each of the first five years and 4% per annum interest in each of the remaining five years. Plan B offers 4% in the first five years and 5% in the remaining five years. Which plan, if any, offers the higher return? 8. Calculate a. Calculate the monthly payment on a mortgage of $180 000 @ 7% interest per annum compounded monthly and amortized over 30 years. b. Determine the outstanding balance after the 24th payment. How much of this payment was allocated to principal and how much to interest? c. Answer part b) for the 36th and 60th payments. d. What is the total of all the payments made over the 30 year period? How much was interest and how much was principal? 9. A car dealer presents two choices to a person seeking a particular car. r Option A Purchase by making monthly payments of $687.92 for 3 years, beginning a month from now. r Option B Lease for 3 years by making monthly payments of $499.50 (beginning a month from now) with an option to purchase at a price of $11 000 at the end of the lease. Assuming that money yields 4% per annum compounded monthly after tax and inflation, calculate the cost of the car for each option. Which option is cheaper? Explain. Internet Exploration Check your answer to Exercise 6 using the Future Worth Calculator on http://www.webfin.com. This site offers a calculator to determine how much you must save to be a millionaire: http://www.tcalc.com Try a few calculations and check that it gives the correct answers.
55
The sum of these accumulated amounts is: 1 700[1 + (1.06) + (1.06)2 + + (1.06)19 ] = 1 700[1.0620 1] / 0.06 or 62 535.51 That is, $62 535.51 would be accumulated in 20 years! 4. The accumulated values of all the annual payments of $x are shown on the time diagram below.
The sum of these accumulated values is: x (1.05625) + x (1.05625)2 + + x (1.05625)25 = x (1.05625)[1 + (1.05625) + (1.05625)2 + + (1.05625)24 ] = x (1.05625)[(1.05625)300 - 1] / 0.05625 Equating this accumulated sum to $500 000 and solving for x yields: x = $638.47.
56
5. The sum of the present values of all the payments of $x must total $60 000 in each case.
a) The present values of the payments of $x are shown in the time diagram. The sum of the present values is: x(1.0075)360 [1.0075360 1] / 0.0075 Equating this to $60 000 and solving for x yields: x = $482.77. This is the monthly payment. 6. a. The time diagram shows that if we make the first payment of $2 000 now and then make payments until the end of the nth year, we make n + 1 payments in all.
The accumulated value of all those payments at the end of the nth year is $2 000[1 + 1.08 + 1.082 + + 1.08n ] or $2 000[1.08n+1 - 1] / 0.08. Equating to $1 000 000 and solving for n yields: n = log 41/log 1.08 - 1. That is, n < 47.25, so it takes about 48 years. b. Proceeding as above, we obtain n < 54.2 years, so it takes about 55 years to accumulate to $2 000 000. c. Proceeding as above, we obtain n < 33.3 years, so it takes about 34 years to accumulate to $2 000 000. 7. If equal deposits of $x are made, Plan A yields about $12.7x, but Plan B offers about $13x, so Plan B offers the higher return. 8. a) monthly payment $1 197.54 b) bal(24) c) bal(36) bal(60) = $176 210.91; = $174 108.53; = $169 436.86; prin: prin: prin: $168.66; $180.86; $207.95; int: int: int: $1 028.88 $1 016.69 $989.59
d) Total payment is 360($1 197.54) = $431 114.40 The total principal repaid was $180 000 so the interest paid was the difference, $251 114.40. 9. Option A We assume in purchase option A that the car is worth $11 000 at the end of 3 years. The accumulated value of 36 payments of $687.92 at the end of 3 years is $26 265.86. Net cost $15 265.86. Option B The accumulated value of 36 payments of $499.50 at the end of 3 years is $19 071.69.
What other resources might I use to teach this activity? How will I link this activity to the investment portfolio task? What follow-up homework assignments would reinforce this concept? What skills from this activity need further reinforcement?
57
58
This type of transaction between a shareholder and the company occurs only once and takes place in the primary market. There are no further exchanges of stock and cash between the company and the shareholder, unless the company decides to issue more shares at a later date.
The man above has purchased 6 of the 9 shares. Because he owns more than half of the shares, he is a majority shareholder.
59
60
61
A day order expires at the end of the day. An at-the-market order specifies the number of shares to be bought or sold at the best price then available. A limit order specifies a maximum price for buying or a minimum price for selling.
The Settlement Process Once you have purchased shares of a stock, your broker will tell you how much you must pay for those shares, including the commission the firm charges for its service. You (the buyer) usually have three business days to make the payment. (Money markets generally allow only one day.) How is this done? The buyer ensures that his or her account has sufficient funds to cover the transaction. The buyers broker then forwards payment (less commission) to the brokerage firm of the seller, who forwards payment (less commission) to the seller. When payment is made, ownership of the stock is transferred from the seller to you, the buyer. The actual transfer of securities takes place through a central clearinghouse. In Canada, the Canadian Depository for Securities (CDS) performs the clearing and settlement function. Before computer-based trading, a share certificate was issued to the buyer, but now stocks are electronically added or deleted from a shareholders account. Role of the Transfer Agent The company whose stock you purchased appoints a trust company (transfer agent) to keep track of its shareholders who they are and where they live. This is important for sending out dividend payments and informing eligible shareholders of annual meetings and their right to vote.
62
Solution 1 - How to Read Trading Information a. XYZ is the symbol associated with a particular company. b. The first number following the symbol denotes the number of shares that are traded. Shares over $1.00 in value trade in board lots of 100. The 10 following the symbol XYZ indicates that 10 board lots of 100, i.e., 1 000 shares were traded. (If the share price were less than $1.00, the board lots might be 500 or 1 000 shares) When the actual number of shares is given, the letter s is used to indicate this, e.g., 1 000s denotes 1 000 shares. c. The numbers following the number of shares traded is the price per share. The 18.25 that follows the 10 indicates that the price was $18.25 per share for the 1 000 shares. (Note that share prices of stocks on the TSX that are less than $0.50 trade in increments of half pennies, those $0.50 and up trade in increments of pennies.) d. The value of the 1 000 shares traded was 1 000 X $18.25 or $18 250. Stock Symbol Share price of the trade, $18.25
XYZ 10.18.25 Number of board lots traded Market by Order (MBO) Display Company whose shares are being traded XYZ 007 003 007 007 007 Firm Bidding Firm 700 6 000 4 500 5 000 6 500 Volume Number of Shares 10.75 10.70 10.55 10.50 10.35 Price Bid Price per Share 11.05 11.40 11.40 11.50 11.55 Price Ask Price per Share 4 500 7 700 4 700 1 200 400 Volume Number of Shares 077 099 077 003 099 Firm Asking Firm
A more convenient display for brokers is the Market-by-Order Display located on their trading terminal. The MBO screen lists 63
the best buy and sell orders for a particular stock. The diagram shows the five best (highest) bids and the five best (lowest) asks for company with stock symbol XYZ. This display is useful for both brokers and traders who are interested in knowing exactly how much of a specific stock is available and at what price. The best bid and ask prices shown in the MBO display may be shown on the ticker: XYZ 10.75 B 11.05 indicating that the highest bid on XYZ stock is $10.75 and the lowest ask is $11.05. Question 2 - Market by Order (MBO) Display Stocks are listed every day in the newspaper but many people find it hard to read a stock page. In the following worked example, we look at the trading activity for the Bank of Calgary stock. A newspaper displays the following trading information for May 26, 2000 on the Bank of Calgary. 1 Year High 60.60 2 Year Low 42.00 3 Stock B of C 4 Sym BC 5 High 59.95 6 Low 58.60 7 Close 59.80 8 Chg +.40 9 Vol 9560 10 Div 2.00 11 Yield 3.34 12 EPS 5.69 13 P/E 10.5
Explain the meaning of the number or symbol in each column as you move from left to right. Solution 2 - Market by Order (MBO) Display Columns 1 and 2 Year High, Year Low These are running numbers that show the highest ($60.60) and lowest ($42.00) price that the Bank of Calgary has traded at in the last 52 weeks. This gives an indication of the price ranges at which the stock has traded. Column 3 and 4 Stock, Symbol These columns give, respectively, the name of the stock and its symbol. Sometimes it is an abbreviation and you might have to look further to find the name. The stock symbol is uniform for Canadian markets and is used on tickers and other sources of market information. Columns 5, 6, and 7 High, Low, Close On this day the Bank of Calgary traded as high as $59.95 and as low as $58.60. The last trade of the day took place at $59.80 and is called the closing price. Column 8 and 9 Change, Volume Change is the difference between the close today May 26 and yesterdays close on May 25. +.40 means an increase of $0.40. ( -.40 would mean a decrease of $0.40.) Yesterdays close was $59.80 $0.40 = $59.40. The number of shares traded (volume) is expressed in 100s. This means that 956 000 shares of the Bank of Calgary were traded. Column 10 Dividend A dividend is the amount of profits that a Board of Directors has declared be paid per year on each share. Not all companies pay dividends. If a company pays a dividend it will be reported in this column. If it is blank then no dividend has been paid. The Bank of Calgary is paying each shareholder $2.00 per share. Column 11 Yield The yield is the dividend divided by the closing price of the stock $2.00/$59.80 = 3.34%. This is the measure of the return on an investment and is shown as a percentage. Column 12 Earnings Per Share (EPS) This is net profit divided by the number of shares. The Bank of Calgary earned $5.69 per share. Note shareholders receive $2 (the dividend) and the company retains $3.69. Column 13 Price Earnings Ratio (P/E) It is obtained by dividing the closing price of the stock by the earnings per share (59.80 / 5.69). This ratio measures the relationship between the earnings of the company and stock prices. The Bank of Calgary is selling at $10.50 per $1 of earnings per share. A P/E ratio of 170 would mean a stock is selling at $170 per $1 of earnings.
64
1. Turn to the financial section of yesterdays issue of a local newspaper. Look for the TSX listings to see the list of stocks and the quotes. Find the following information: r the S&P/TSX Composite at the close of the previous day. r the change in the index over the day before yesterday. r the % change in the index. r the high and low values of the S&P/TSX Composite over the past 52 weeks. r the spread in the S&P/TSX Composite in the past 52 weeks. 2. Use the information you recorded in Exercise 1 to determine whether the S&P/TSX Composite is now closer to its high point or low point for the past year. Do you think the S&P/TSX Composite will rise over the next few months? Give reasons for your answer.
65
3. Look for a table in your newspaper that lists the most active stocks. What do you think is meant by most active? Write the name of the most active stock on the TSX yesterday. How many shares of that stock were traded? Do you know why that stock was so heavily traded? If so, explain. 4. Since the price of a stock can fluctuate, changes in the value of the investment are called capital gains or capital losses, depending on whether the value has increased or decreased. Look for a table in your newspaper listing the biggest % gainers and losers on the TSX. Record the name of the company that was the biggest % gainer. If you owned $100 000 of that stock at the market opening yesterday, what would be the value of your $100 000 investment at the end of the day? How much of a capital gain would you have made? 5. Look for a table in your newspaper that lists the biggest net gainers and losers on the TSX. Record the name of the company that was the biggest net loser. If you owned 10 000 shares of that stock at the market opening yesterday, how much of a capital loss would you have sustained on that stock by the end of the day? Internet Exploration
q q q q
Access the TSX home page at http://www.tsx.ca Select site map from the menu along the top of the home page. Then select closing summary. Locate the tables showing the most active stocks, the top advances and declines and the biggest % gainers and losers. Does the data match what you found in the newspaper? Explain why or why not.
1 S&P is a trademark of The McGraw Hill Companies, Inc. 2 i60 units are created by Barclays Global Investors Canada Limited.
66
volume. Indicate from your research whether you think this company is a good investment and support your opinion with information gleaned from your research. 3. Web site Go to the web site http://www.tsx.ca 4. Financial Snapshot Go to the box beside Get Quote and type in the stock symbol. Click Get Quote to continue. Notice that if you have forgotten the symbol, there is a link to help you search for the symbol. Under Detailed View investigate 4 links and make notes as you investigate. a. Company Information Use this link to find out three or four facts about the company and its products. Get a sense of what this company is all about. Note, you might have to go back through the screens. Look at the annual reports for important information about the companys future plans. b. Company Snapshot Use this link to find three or four key financial facts about this company, such as sales (revenue), profits, and total assets. Remember to record the name of the industry for this company and the names of its top competitors. c. Price History Look at the price and try to describe the trend. Is the trend of price and volume upward, downward, stable or volatile? What evidence supports this? d. Charts The charts cover the same material as the price history but contain a variety of time periods. Look at them and try to identify any trends you see about price and volume of this stock. Offer some support for your conclusion. e. Other Sources Use a search engine to find other information about this company. Write down the URL to use as the reference for what you found. 5. Comparison Report Brainstorm in class and find some of the areas of information that most people found, e.g., stock price, high and low, revenue, industry, number of employees, head office location. With a partner, prepare a similarities and differences report about the companies you found, based on some of the criteria developed in class. Using Data to Analyse a Particular Stock - Worksheet 1. The company Ive chosen to investigate is ________________________________________________ 2. Information about the company (highs, lows, symbol, volume). Is this company a good investment? Why? _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ 3. Web site - http://www.tsx.ca List facts about the company and its products. _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ 4. Financial Snapshot List the companys sales, profits/losses, total assets. Industry___________________________________________________________________________ Competitors _______________________________________________________________________ 5. Price History Describe the trend; include evidence. _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________
68
6. Charts What trends have you identified? Offer support for your conclusion. _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ 7. Other Sources (URLs) _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ Partner __________________________________________________________________________ Partners company _________________________________________________________________ Compare and contrast your companies _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________
69
22.5 Active Cell 54.5 B of C 12.5 Can Wear 45.6 Lava Auto 43.5 Nickel Mine
52Wk 52Wk High 4 032.70 2 779.67 9 632.80 1 336.9 14 256.09 Low 3 703.60 Mining 1 240.00 Tech Software 8 455.00 Banks & Trusts 803.00 Household Goods 12 383.00 Auto Parts Index High 3 422.05 2 748.67 8 558.00 996.85 13 296.85 Low 3 410.50 2 743.29 8 553.45 991.78 13 191.78 Close 3 421.05 2 747.56 8 557.38 994.50 12 294.50 Chg +39.17 +22.10 +12.14 -9.78 +2.78 Vol 1 166 374 1 688 988 2 185 596 27 008 1 56 983
70
Most Active Issues Stocks NS Tell Can Wear Kitchenin Sym NTE CW KLT Volume 292 777 290 648 281 531 Close 23.05 14.40 78.50 Chg +0.40 -0.10 +0.10
Biggest % Gainers Gainers Active Regal Catso Sym ACT TML COB Volume 31 150 851 283 4 000 Close 122.80 7.00 0.12 Chg +23 +21 +20
Biggest % Losers Losers CTS Inc Evergreen Batch Sym CTS ECG.A CoBTC Volume 30 000 27 150 45 000 Close 0.23 1.80 0.25 Chg -35 -26 -25
1. In addition to the information in the newspaper, there is a partial ticker. CW 14.20B14.60 NMW.PR 5.47.45 BC 3.59.10 BC 4.58.95
CW 14.30B14.60
Based on all the information given, answer the following questions: a. What stock has the symbol CW? b. What is the closing price for Lava Auto? c. If you bought 100 shares of Nickel Mine at the closing price how much money would you spend? d. What profits would you have made if you bought 100 shares of Active Cell at its lowest price for the whole year and sold it at its close today? e. What price did the Bank of Calgary close at yesterday? f. What number of shares of Lava Auto was sold? g. If Can Wears trades were all trades involving one board lot, how many trades were there? h. What stock has the highest dividend yield? i. What is the lowest P/E ratio? j. What was the most active stock on the exchange? k. What stock decreased the most in price on the exchange? l. Which index was the most active? m. Did the change on the ticker for Can Wear indicate more or less demand? n. What is significant about one of the trades for the Bank of Calgary? 2. You have $60 000. You can buy any combination of the five stocks on the stock page. Commissions are set at $29 a trade. You must buy at least one board lot. You can choose to keep any cash in a treasury bill, which has an interest rate of 3.5% annually. Submit to your teacher a well-organized summary of what you have done showing all costs and how you used the $60 000. Internet Exploration Your teacher will provide you with the closing prices and the dividends for all five of the stocks as of December 31. When you have this information, calculate how much you have earned on paper for your portfolio. Show all work. How do you calculate broker commissions? Visit the web site below to discover how to calculate the commissions a broker charges on a stock transaction. http://www.tdwaterhouse.ca/services/fcschedule.jsp
71
Based on all the information given, answer the following questions: a. What stock has the symbol CW? Can Wear b. What is the closing price for Lava Auto? $74.10 c. If you bought 100 shares of Nickel Mine at the closing price how much money would you spend? $4 730.00 d. What profits would you have made if you bought 100 shares of Active Cell at its lowest price for the whole year and sold it at its close today? $10 030.00 e. What price did the Bank of Calgary close at yesterday? $59.00 f. What number of shares of Lava Auto was sold? 650 000 g. If Can Wears trades were all trades involving one board lot, how many trades were there? 26 000 h. What stock has the highest dividend yield? Nickel Mine i. What is the lowest P/E ratio? 12.6 of B of C j. What was the most active stock on the exchange? NS Tell k. What stock decreased the most in price on the exchange? CTS Inc. l. Which index was the most active? Banks and Trusts m. Did the change on the ticker for Can Wear indicate more or less demand? More n. What is significant about one of the trades for the Bank of Calgary? Price change of $0.15 2. Answers to Exercise 2 and Internet Exploration will vary.
72
73
b. Dollar value of goal (*Note: You will need to use the Education or Retirement Calculator from the Planning Tools for Education and Retirement Goals Exploratory Activity). c. Anticipated investment/savings per month or year towards goal
74
Worksheet 2: Investment Goal(s) Cont'd Detailed questions to ask in your investment team discussions to assist with your investment plan (Source IFIC Investment Funds Institute of Canada Web site www.ific.ca) 1. What are the client's objectives? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 2. How much risk is the client comfortable with and why? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 3. What are the client's up-coming financial needs, and goals, when will they need money to meet or achieve these needs/goals? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 4. How much does the client have to invest? Do you know how much money can be invested on a monthly or yearly basis? Will the client be adding to their portfolio each year? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 5. What are the client's current investments? How much are they worth? What is the client's family situation? How much money do they require each month to maintain their standard of living? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 6. If relevant, when do they plan to retire? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________
75
76
Speculative A riskier form of equity investment. Equity These assets, e.g., stocks and mutual funds, can grow in value but may not pay dividends. Though risky over the short term, they have greater long-term potential. Fixed Income These generally offer higher returns than cash and savings accounts. They provide a source of regular investment income, which remains the same over time ("fixed"). Examples are term deposits, GICs, bonds and income mutual funds.
Strip Bonds Commercial Paper Bond Mutual Funds Bankers' Acceptances Short-Term IOUs Issued by Corporations Corporate Bonds & Debentures Canada Savings Bonds Government Bonds Corporate Bonds Cash and Cash Equivalents Current and Savings Accounts Money Market Funds Treasury Bills Insurance
Cash & Cash Equivalents These are assets that can be made accessible at any time ("liquid"). This is generally the safest category of investment, but it produces the lowest returns. Examples are savings accounts, treasury bills, and money market mutual funds.
77
Names Of Investment Team Group Members: ____________________________________ _________________________________________________________________________ 1. Read "Step 3 - Asset Allocation Model" then define the following asset allocation categories and give three examples of each: a. Cash and Cash Equivalents ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ b. Fixed Income ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ c. Equity ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ d. Speculative ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ 2. Discuss and describe an asset allocation mix which is suitable for your clients personality profile and investment goal(s). Consider risk and return carefully. Use the back if more room is required.
78
79
there is general pessimism about the health of the economy. the prices of stocks are falling.
there is general optimism about the health of the economy. the prices of stocks are rising.
80
Diversification One way to reduce investment risk is to invest in a variety of stocks that may span several market sectors, such as utilities, natural resources, technology, or financial services. In this way, any capital losses sustained by stocks in one sector may be partially or fully offset by capital gains of stocks in another sector. Such hedging of investments is called diversification. One investment vehicle that facilitates diversification is the mutual fund. A mutual fund is a collection of investments such as stocks, bonds, or cash equivalents (investment that easily can be changed into cash) that can be purchased as a single entity. Some mutual funds provide diversification across sectors, while others provide diversification across international markets.
81
Measuring Inflation Year 1970 1975 1980 1985 1990 1995 2000 CPI 24.2 34.5 52.4 75.0 93.3 104.2 113.5
82
Purchasing power can also be used to compare the currencies of different countries. The Economist magazine created the Big Mac Index. This index compares the price of a Big Mac in the United States with its cost in another country. Assuming the cost in both countries represents the same value enables us to calculate what the currency conversion should be. For example, a Big Mac in the United States costs about $US 2.44. The graph shows that in Brazil it costs about $US 1.61 when the actual exchange rate used is $US 1.00 = 1.84 real (Brazilian currency). However, if we assume that the Big Mac has the same value in both countries, then the value of the burger in Brazil should be $US 2.44, not $US 1.61. That is, the Brazilian currency is exchanged at only 1.61/2.44 or about 66% of its true value. In other words the Brazilian currency is undervalued by about 34%. Research the cost of a Big Mac in your area and assume its close to the average Big Mac cost in Canada. Then calculate the Big Mac Index for Canada and compare this with the current exchange rate. Does the Big Mac Index suggest that the Canadian dollar is overvalued or undervalued?
The Economist, January 8 14, 2000, page 100
83
GDP in $billions 1992 = 100 100.0 101.8 103.8 105.0 106.6 107.5 106.9 108.7
84
Money Supply 7. Go back to economic conditions, then: >Money market >Exchange rates, interest rates, money supply and stock prices. To preserve the value of Canadian currency, the Bank of Canada sets a monetary policy that attempts to keep inflation within the 1 to 3 percent range (as measured by the CPI). One of the factors that the Bank of Canada uses to assess potential inflation is the money supply. Roughly speaking, this is the amount of Canadian money in circulation. Two of the most useful measures of the money supply are M1 and M2 defined as follows: M1 is the total value of the currency in circulation (i.e., outside the banks) plus the total demand deposits in banks.
85
M2 is M1 plus the values of all savings accounts and term deposits in banks. Record the values M1 and M2 for the years 19982002. Was the money supply increasing significantly during this period? Do you think this was an inflationary period? Give reasons for your answers. 8. The Bank of Canada web site at www.bankofcanada.ca/en/backgrounders/bg-m2.htm, states: The Banks economic research indicates that the growth of M1 provides useful information on the future level of production in the economy. The growth of the broader monetary aggregates, e.g., M2 is a good leading indicator of the rate of inflation. No growth in the money supply is consistent with modest growth or deflation, while strong growth in the money supply might suggest impending price inflation. Study the interest rates for the years 1998 2002. Do the interest rates suggest an inflationary trend during those five years? Does your conclusion agree with your conclusion in Exercise 7? Explain. For more information on the money supply, you might wish to visit The Royal Canadian Mint web site at http://www.rcmint.ca/en/
January 2000
86
from such information by either buying or selling stock is called insider trading. What measures do market regulators such as Market Regulation Services and OSC take to ensure that such insider trading does not occur? 2. If a company employs senior officials whose decisions drive the company into bankruptcy, thousands of investors could lose their life savings. What safeguards are in place at the Toronto Stock Exchange to offer some protection for investors? 3. To decrease the share value of a company, a major shareholder of a company, in an unregulated market, could offer a large number of shares for sale. Once the price fell, the shareholder could repurchase the shares at a lower price and enjoy a substantial profit. This manipulative trading gives an unfair advantage to both insiders and major shareholders. How might Market Regulation Services prevent this from happening? 4. In an unregulated market, a broker could take your order to offer your stock for sale at a particular price and then sell it at a higher price. The broker might then purchase the stock from you at the price you requested and pocket the difference. How does Market Regulation Services seek to prevent this from happening? 5. Research these Canadian stock exchanges on the Internet and report what they are and what kinds of investments they include as their specialties. r TSX Venture Exchange r Montreal Exchange. Solution 2 - Promoting a Fair and Equitable Market Student answers will vary. However, the elements that will appear frequently in the answers are given below. 1. Insider trades must be reported within 10 days. In certain situations, insiders are prohibited from making market transactions. In other situations, full disclosure must be made through the Insider Trade Reporting System. Market Regulation Services requires that a listed company issue a news release of any material changes in its affairs that could affect the price of its stock. This requirement is called timely disclosure and is designed to ensure that all investors have access to important information at the same time. 2. To protect the investor from such a loss, the Toronto Stock Exchange requires that all officers, directors and owners of more than 10% of the stock must file documents that profile their background, business experience and industry knowledge before the stock is listed on the TSX. Also, not every company can be listed on the TSX. There is a strict set of requirements that a company must satisfy to be listed on the TSX and once listed, the company must continue to maintain these requirements. 3. To safeguard against manipulative trading, Market Regulation Services requires that its participating organizations maintain an orderly market. This means that price fluctuations should occur only as a result of market demand and not from price manipulation by those with an advantage. 4. Market Regulation Services has established a strict set of trading rules with which brokers must comply. These trading rules are designed to prevent this kind of abuse. Furthermore, Market Regulation Services investigates complaints involving any trading practice that is not in compliance with these requirements. 5. The goal of the TSX Venture Exchange is to provide venture companies with effective access to capital while maintaining a high level of protection to investors. The Montreal Exchange specializes in derivative products while the Toronto Stock Exchange has been established as the senior equities market in Canada.
88
Understand approaches for saving money Define future and present value Practice calculating time value of money
Item 1. 2. 3. 4. 5. Brainstorming
Estimated Cost
In the oval below, brainstorm with a partner, ways that you see yourself building wealth to save for these goals.
Meeting the Goals In the exercises above, you have thought about five different purchase goals for yourself over time and you have recognized that each one of these items will cost you a certain amount of money. In order to save enough to realize the goals you have set forward, you must understand what can happen to your money over time. Some of you may already have money in your bank account, and you will want to take a look at how that money will grow in the time period you have outlined. Or, you can take a reverse approach by first considering the amount of the item you want to purchase and then figure out how much you will need to keep in the bank in order to achieve your goals. These two different approaches to understanding saving are called Future Value and Present Value. 89
Review
In your own words, describe the difference between future and present value. Future Value
Present Value
In Relation to the Stock Portfolio you are creating in this unit, why is it important to know how to calculate growth in these two ways? 90
Exercises for Practice 1. Assume that you have $5,000 in your bank account that is earning 5% interest annually. How much money will you have available for the purchase of the items on your wish list at the end of the fifteen years?
2. Take one of the items on your wish list above and calculate the lump sum that you will need to put away in a bank account today to reach that purchase goal. Assume that the interest rate is 5%.
Partner Reflection: How did you decide which formula to use? Share your answer with a partner.
Exercises
1. Explain why a cash payment of $1 000 now is worth more than a cash payment of $1 000 five years from now. 2. Determine the present value of each future amount if money is worth 6% per annum compounded monthly. a) $1 000 a month from now b) $5 000 a year from now c) $10 000 five years from now 3. The table below shows the yields for Government of Canada strip bonds on a particular day in May 2000. Government of Canada Bond Yields Canada 2-year bond 6.25% Canada 10-year bond 6.19% Canada 30-year bond 5.81% a) Calculate the cost of each of the bonds if each has a face value of $1 000. b) Which bond would you choose if you were to invest? Give reasons for your answer. 4. If money can earn 8% per annum compounded annually, what is worth more: $600 000 now or one million dollars ten years from now? Show how you obtain your answer.
5. How much money must be invested now at 6% per annum compounded monthly to grow into one million dollars: a) 15 years from now? b) 25 years from now? c) 35 years from now? 6. A 20-year strip bond with a face value of $10 000 is offered for sale when it has 15 years to maturity. a) What is the price of the bond if the yield is to be 9% per annum compounded annually? b) When the bond has only 10 years left to maturity, it is offered for sale at $3 855.43. Estimate the yield on the bond if it is then purchased and held to maturity. 91
7. A $100 10-year bond offers annual coupons (payments) of 5% of its face value, as shown in the time diagram below. What price should an investor pay for the bond now to obtain a yield of 6%?
8. A $1 000 20-year bond offers semi-annual coupons of 6% of its face value. What should an investor pay for the bond now to obtain a yield of 8% compounded semi-annually over the 20-year period? 9. A lottery pays $4 000 per month for life. What is the present value of this prize if money is worth 6% per annum compounded monthly and the recipient lives for another: a) 10 years? b) 20 years? c) 40 years? (Assume the first payment of $4 000 is made one month from now.) By how much is the present value of the prize increased if the recipient lives 45 instead of 40 more years?
92
The total present value of the annual payments is: 5(1.06)1 + 5(1.06)2 + + 5(1.06)10 = 5(1.06)10 [1.0610 1] / 0.06 = $36.80 The present value of the face value is 100(1.06)10 $55.84. The present value of the bond is $36.80 + $55.84 = $92.64. Therefore, the investor should pay $92.64 now to yield 6%. 8. Construction of a time diagram as in the solution to Exercise 7 yields the following expression for the sum of the present values of all the $60 coupons. 60(1.04)1 + 60(1.04)2 + + 60(1.04)40 = 60(1.04)40 [1.0440 1] / 0.04 1 187.57 The total present value of the coupons is $1 187.57.
93
The present value of the face value is $1 000(1.04)20 or about $208.29. So the total present value of the bond is $208.29 + $1 187.57 or $1 395.86. Therefore, the investor should pay $1 395.86 now to yield 8%. 9. Construction of a time diagram as in the solution to Exercise 7 yields the following expression for the sum of the present values of all the $4 000 payments over a period of n years. 4 000(1.005)1 + 4 000(1.005)2 + + 4 000(1.005)12n = 4 000(1.005)12n [1.00512n 1] / 0.005 a) For n = 10, the total present value of the payments is $360 293.81. b) For n = 20, the total present value of the payments is $558 323.09. c) For n = 40, the total present value of the payments is $726 990.34. For n = 45, the present value is $745 872.67. That is, the present value is increased by $18 882.33 if the recipient lives for 45 more years instead of 40 years.
94
REITs (Real Estate Investment Trust) is a company that owns and sometimes operates income-producing real estate, i.e., apartments, malls, offices, and industrial parks GICs (Guaranteed Investment Certificates) are certificates offered by banks, trust companies and credit unions, which offer a form of principal and interest guaranteed for the term of the certificate. Royalty Trusts Investments that tend to be energy-related, focusing on fossil and synthetic fuels.
95
The graph above shows the average of the S&P/TSX Composite Index each year between 1955 and the year 2000. Using this graph, identify and record the years when it would have been most profitable to buy the stocks that contribute to the S&P/TSX Composite Index. Describe the shape of the graph during a bull market and during a bear market. Do you think there is a way to predict whether the graph will turn upward or take a downward dive? Explain your answer. After we buy a stock, we would not be disturbed if markets closed for a year or two; we don't need a quote on our position....to validate our well being.
Warren Buffett (One of the worlds most successful stock investors)
96
2. Journals and newspapers such as the National Post (formerly Financial Post), the Globe and Mail, and Canadian Business, all produce annual magazines that rank Canadian companies according to various criteria such as profitability. Check those rankings to find the names of those companies that appear at the top of the list. 3. As noted in the exercises of Lesson 4, the list of the biggest gainers, as well as the most actively traded stocks, are found daily in the newspaper. They will lead you to stocks that have made the greatest gains in a single day as well as the stocks that traded the greatest number of shares. This one is taken from The Toronto Star, June 9, 2000.
97
4. Newspapers and magazines are useful sources of articles about companies. The article on the right is taken from The Toronto Star, June 10, 2000. What does it report about the change in price of the Bombardier class B shares? What was the price at the end of trading on June 9, 2000? How does the price of the Bombardier shares on June 9, 2000 compare with the price on March 30, 2000 given in the article in Exercise 1. above? How close was the price on March 30 to the target price given in the newsletter shown above?
98
99
$ $
Solution 1 - How to Read an Annual Report: The Balance Sheet Solution A comparison of the shareholders equity for both companies reveals that Company B has retained earnings of $2 988 546 000, while Company A has retained earnings of $1 874 204 000. This might suggest that Company B has greater value. A closer look at the balance sheets reveals that most of Company Bs assets are fixed assets, which may be illiquid, i.e., cannot be readily turned into cash to pay bills. But its current liabilities exceed its current assets. Company B could run into a cash flow problem. One way to measure a companys liquidity is to calculate the ratio of its current assets to its current liabilities, i.e., immediate payables. This is called the current ratio. For Companies A and B, the current ratios are respectively 150 and 0.60. Company A appears to be more solvent than Company B. However, the current ratio does not tell the whole story, so it would be necessary to look at last years profit found in the income statement. Current Ratio current assets current liabilities Current Ratio for A $1 456 872 150 $9 743 Current Ratio for B $186 359 0.60 $312 569
100
Solution 3 - How to Read an Annual Report: The Income Statement a. A comparison of the two income statements reveals that the profits or earnings made by Companies A and B were $44 351 990 and $50 428 134 respectively, so Company B made a larger profit. However, these earnings are distributed over different numbers of shares, so we must calculate the earnings per share for each company as shown on the right. We see that Company A made $1.14 per share while Company B earned $2.73 per share. Clearly Company B earned more per share than Company A. b. Although Company B earned more per share than Company A, the price of a share of stock of Company B is $84.50 compared to $16 for Company A. With $84.50, we could buy more than five shares of Company A and earn more than 5 times $1.14. That is, to compare the prices of the shares for the two companies, we divide the price per share by the earnings per share. This is called the price:earnings ratio, or more often, the P/E ratio. For stock in Company A, the P/E ratio is $16/$1.14 or about 14. For stock in Company B, the P/E ratio is $84.5/$2.73 or about 31. Stock in Company A has the lower P/E ratio and this suggests it offers a better value. Traditionally, companies sold at P/E ratios between 8 and 16. However, some technology stocks in recent years are trading with P/E ratios as high as 100 and greater. Those who buy these stocks believe that the company is in a rapid growth phase that will ultimately yield high profits or that someone will soon buy the stock at a higher price.
101
Return on Equity
Inventory Turnover time it takes to turn over inventory (the fewer days, the more efficient management) Accounts Receivable Turnover
how long it takes a company to collect its accounts receivable The current ratio measures whether or not the company has enough liquid assets to pay debts. 2:1 is generally considered to be favourable. how much of these assets are financed by the shareholders(50:50 is generally considered to be favourable) how much of the assets are financed by borrowing measures the efficiency of management in turning over the companys goods at a profit (the higher the ratio, the better)
102
Current Ratio Liquidity is a measure of the companys ability to meet current debts. Debt/Equity Ratio Leverage is measured by the ratio of assets financed by shareholders to the total assets owned by the company. Debt Ratio
Debt Equity
Gross Profit Margin The companys rate of profit after allowing for the cost of goods sold.
Financial Ratios
Dividend Yield
measures the return on investment (should show an increase) measures how much each share has earned (should show an increase) facilitates the comparison of different stocks (8:12 is generally considered to be normal. Historically, P/E ratios have tended to fall in the 8:12 range; however, market conditions can lead to significant variations.) the stock price relative to the expected growth in earnings of a company
The ratios in column 4 are general benchmarks and may vary with the industry.
103
a. Which of the stocks in the table has the highest growth expectation? Give reasons for your answer. b. Which companys earnings are not expected to grow as fast as the others? How do you know? c. Which stock gives the highest yield? Explain how you know. a. The table below shows some data from the 1999 annual reports of Company S and Company N. Enter these data in a spreadsheet. Then calculate the percentage change in the assets of each company from year-end 1998 to year-end 1999. Save your spreadsheet for Part b).
From your completed spreadsheet, identify which company is growing faster. Give reasons for your answer.
104
b. The table on the right shows the industry standards for various indicators. Add rows to the spreadsheet you created in Part a) to calculate the quantities shown in this table for Companies S and N. Using the appropriate quantities, describe which company is more profitable, and which company investors seem to favour. Describe how these companies compare with the industry standard.
3. The table below displays ratios calculated for Company XYZ for 1998 and 1999. Complete column 4 by indicating for each ratio whether the company is better or worse in 1999 than in 1998. Then complete column 5 by identifying the criterion associated with that particular ratio,. e.g., profitability, efficiency, control of costs, leverage (debt), and liquidity.
105
4. The table to the right displays selected ratios calculated for a company from the 1997, 1998 and 1999 annual reports. Study this table, then indicate whether you would invest in this company. Support your answer with reasons.
106
a. The completed table is shown below. The assets of Company S increased by 29.1% between 1998 and 1999, while the assets of Company N increased by only 14.3%, thus the assets of Company S grew more quickly. Comparison of the third and sixth columns in the table reveals that Company S grew more quickly than Company N in assets, net income, revenue, equity, stock price, and dividends. Company N increased its number of shares by more than Company S, but this is not necessarily an indicator of growth.
b. The completed table is shown below. Company N has a higher return on assets, a higher profit margin on sales, and a higher return on equity, so it is more profitable than Company S. Investors seem to favour Company N because it has a higher P/E ratio. That is, people are willing to pay a higher price for its relatively smaller earnings because they expect it has growth potential. A perusal of the completed table shows that in some cases a company is performing above industry standards, while in other cases it is performing below those standards, e.g., both companies have a higher dividend yield than the industry standard of 5.0%.
107
108
q q
q q q
Purpose: What is the purpose of the web site? to inform? to persuade? to sell? to explain? Audience: Who is the audience for this web site? Links: Are there any criteria for link selection? Is the site inward-focused (links within the site) or outward-focused? (links outside the site) Is there a balance between inward- and outward-focused links? Does the web site agree with information you have already found? Is the information fact or opinion? Is the content biased?
Analyse the URL (Universal Resource Locator) The URL consists of the domain name plus three letters that describe the sponsoring organization. These three letters suggest the answers to some of the questions above. .com means commercial and is business oriented .edu means education and is a university or college .k12 means it is a school (kindergarten to grade 12) .org means it is a non-profit organization .gov means government .net means it is an internet provider ~ means it is a personal web page. Personal web pages tend to be opinion-based. In addition, countries have their own codes, e.g., .uk United Kingdom, .ca Canada, .jp Japan, and .fr France Ascertain the Currency and Source
q q q
Is the author of the material identified? What is the authority or expertise of the individual or group that created this site? When was the web page created and last updated? Are there any links that dont work?
Question 4 - How to Evaluate Internet Sites Step 1 There are many sites on the Internet that provide information on stocks. Visit one of these sites and find a company to investigate further: http://www.tsx.ca http://www.investorsfund.ca http://ipo.investcom.com http://www.webfin.com
109
Step 2 Visit the company web site you selected in step 1 and see what you can find out about the company. Step 3 Search other sites using a search engine to find out more about the company you have chosen. Select some of the evaluation criteria from the previous page and evaluate the web sites as you access them. Record your assessments. Step 4 Write a report that includes the following elements:
q q q
an evaluation of the web sites you visited; a recommendation to buy or not to buy stock in the company you investigated; a list of at least ten pieces of evidence to support your recommendation.
110
111
Capital Gain Capital Loss Capital Markets Cash a cheque Cash equivalent Cheque Collectibles
A payment method where you make a portion of the amount you sell. The fee that is paid for buying or selling investments The interest earned on an investment is added to the base amount, and this new figure is used to calculate the following year's investment A written or verbal agreement enforceable by law A slip that entitles the holder to a discount when purchasing goods or services A part of a bond, which can be presented at a bank to receive specified interest payments after the due date A measure of change in consumer prices as determined by a monthly statistical survey A card issued by a financial institution that allows you to buy ''on credit.'' (The financial institution pays the purchase price, but the loan must be repaid within a certain time to avoid an interest fee). A non-profit co-operative (Members can borrow money, make deposits, and pay low interest rates). Money circulated within an economy including coins and paper notes A decrease in the cost of goods and services over a period of time resulting in an increase in the purchasing power of the dollar Money that has been borrowed and must be repaid with interest by a set date A card that allows you to transfer money from one bank account to another (When used, money is deducted from your bank account and added to the merchant's account). Money that is borrowed (The borrower pays interest for the use of the money and is obligated to pay at a set date). Decrease in value over time A class of trading instruments that has no tangible net worth but get their value from the claim to some other financial asset The difference between the lower price paid and the original price Reducing risk by spreading money among various types of investments A portion of a companys profits paid to shareholders A cash payment using profits that is announced by a company's board of directors to be distributed among stockholders Net income for a company during a specific period Net income for a specific period divided by the number of outstanding shares To sign the back of a cheque to prove you are the person to whom the cheque is written A sum of money used for a need or a want Stocks, which represent a share in the ownership of a company Institution that collects funds from the public to place in financial assets such as stocks, bonds, money market instruments, bank deposits or loans Any 12-month period that a company uses for accounting purposes Contracts to buy or sell an investment or asset at an agreed price with delivery on a specified date in the future Certificates offered by banks, trust companies and credit unions, which offer a form of principal and interest guaranteed for the term of the certificate The compounded annualized rate of growth of a company's revenues, earnings, dividends, etc. A fixed amount earned per hour An increase in the cost of goods and services over a period of time resulting in a decrease in the purchasing power of the dollar
113
Credit Union Currency Deflation Debt Debit Card Debt Depreciate Derivatives
Earnings Earnings Per Share Endorse (a cheque) Expenditures Equities Financial Institution Fiscal Year Futures GIC (Guaranteed Investment Certificates) Growth Rate Hourly Wage Inflation
Interest
Money that is paid for the use of someone elses money A fee charged by a financial institution for borrowing money, or for late payments OR the charge for the privilege of borrowing money, typically expressed as an annual percentage rate
Invest Investment Invoice IPO (Initial Public Offering) Liability Market Index Minimum Wage Minting;Mint Money Management Mutual Fund Needs Net Worth Option Overtime P/E Ratio
In business, to layout money with the view of obtaining an income or profit The use of money to make more money, to gain income and/or increase capital A list of goods and services rendered, showing the amount to be paid The first sale of shares by a company to the general public, also called Primary Distribution Debts that must be paid A statistical measure of the market of economy based on the performance of stocks, bonds and commodities The lowest hourly wage a company can legally pay (Different province have different minimum wages). To make a coin by stamping metal; a place where money is coined Planning how to take care of and protect your money, including budgeting, saving and investing A pool of money invested in a wide range of investment options Requirements necessary to live a certain lifestyle The difference between your assets and liabilities (It defines your wealth). A contract between a buyer and a seller that carries terms allowing an investor to lock in a predetermined purchase or sale price for a particular security Each additional hour worked over 40 hours a week Calculated by dividing Market Value per share by Earnings per Share ( A high P/E can indicate high projected earnings in the future. It is useful for making comparisons between companies or against the company's own historical P/E Ratios). Type of employment that pays according to the amount of pieces produced Holdings of securities by an individual or institution The value today of a future payment discounted at some appropriate compound interest rate A financial gain, or the money left over after subtracting expenses from income A legal document that provides detailed information about a companys line of business, financial position and plans for the sale of stock A company that owns and sometimes operates income-producing real estate, i.e., apartments, malls, offices, and industrial parks An investors ability to accept the possibility of losing capital The cumulative total of annual earnings kept by a company after payment of all expenses and dividends The profit or loss resulting from an investment The amount of annual sales, including discounts and returned merchandise Investments that tend to be energy-related focusing on fossil and synthetic fuels
Piecework Portfolio Present Value Profit Prospectus REITs (Real Estate Investment Trust) Risk Tolerance Retained Earnings Return on Investment Revenue Royalty Trusts
RRSP A personal retirement fund to which a Canadian can contribute in order to save money (The (Registered Retirement Savings Plan) money in an RRSP can be invested in approved stocks, bonds or money instruments. The advantage of an RRSP is that the tax on any money contributed to this fund, as well as any money earned on the investments in this fund, is deferred until the money is withdrawn). Rule of 72 The Rule of 72 states the product of the annual growth rate of an investment and the number of years for the investment to double in value is approximately 72, i.e., an investment growing at a rate of 8% per annum could be expected to double in value in approximately 9 year A fixed amount paid in regular intervals by an employer
114
Salary
Savings Savings Account Share Stale dated Stocks Stock Market Strip Bonds
The difference between earnings and expenses An account intended for depositing funds Certificate representing ownership in a corporation Cheques older than 6 months, which are usually no longer valid Shares in the ownership of a corporation that are a claim on its earnings and assets A place that brings together users and providers of capital Bonds where the interest coupons have been detached from the principal (The principal and the coupons trade separately, usually at a substantial discount. Examples of strip bonds are federal and provincial government bonds). Money levied by the government on income and sales A record of current trading that has occurred on an exchange, previously printed on paper, currently displayed on an electronic board Payment of one and a half times the regular hourly wage, usually paid for each hour over 40 hours worked in one week A sum of money given as a reward for service in addition to the cost of the service An exchange in which buyers and sellers agree on a price
Taxes Ticker
115
Names of Investment Team Group Members: ____________________________________ 1. Write the definition of: a. Capital Market _________________________________________________ ____________________________________________________________ ____________________________________________________________ b. Institutional Investor ____________________________________________ ____________________________________________________________ ____________________________________________________________ c. Individual Investor ______________________________________________ ____________________________________________________________ ____________________________________________________________ 2. Stocks/Equities: When you are selecting shares of a business for your client, he/she will become a part owner in that company. To help your client understand the types of stock purchases available, define the difference between the following two types of purchases: a. Primary Market (Initial Public Offering) Stocks: __________________________ ______________________________________________________________ ______________________________________________________________ b. Secondary Market Stocks:___________________________________________ _______________________________________________________________ _______________________________________________________________ 3. Practise Group Task For Your Portfolio: Invest $3,000 in stocks for your client. Complete the chart as a group activity and place the completed chart in your groups portfolio. Design a spreadsheet to help you with your groups work. Some column headings may be: A Date B Company C Symbol D No. of Shares D Price per Share E Total F Amount Left ($3000-F)
116
Worksheet 4: Capital Markets and Investing (cont'd) 4. To complete your portfolio assignment for mutual funds follow the instructions in the order listed below. a. Read through the information on Investment decisions. b. Go to the web site to read about mutual funds. 5. Answer the following questions to help with your understanding of mutual funds: a. Write the definition of a Mutual Fund.______________________________________ ____________________________________________________________________ ____________________________________________________________________ b. Describe Net Asset Value Per Share (NAVPS). ______________________________ ____________________________________________________________________ ____________________________________________________________________ c. Describe Management Expense Ratio (MER). ______________________________ ____________________________________________________________________ ____________________________________________________________________ d. What is the main benefit of a mutual fund investment? ________________________ ____________________________________________________________________ ____________________________________________________________________ e. Make a list of five to seven types of mutual funds.____________________________ ___________________________________________________________________ ___________________________________________________________________ 6. Practise Group Task For Your Portfolio: Invest $3,000 in some mutual funds for your client. To record your investment, design and complete a chart in your group and place the completed chart in your group's portfolio. In your chart, state the name of the mutual fund, the purchase price, the number of shares and the total amount invested. Name Purchase Price NAVPS Number of Shares Total Amount
117
Foster, Sandra E
1992 1997 1998 1999 2001 2000 1985 1997 1999 1998 1998 1998 1999 1999
Garner, Robert J. et al. Gontanills, George A. & Gentile, Tom Goodman, Susannah Blake Graham, Benjamin & Buffet, Warren E. (preface) Hall, Alvin D. Hull, John C. Investor Learning Centre
How to Read Financial Statements The Worth Guide to Electronic Investing Globe and Mail: Understanding Mutual Funds Globe and Mail: RRSPs and Other Retirement Strategies 2000 Globe and Mail: Mutual Fund Strategies 2000 Choosing the Best Financial Advisor: Sage Advice Rich Dads Rich Kid, Smart Kid Rich Dad, Poor Dad The Battle for Investment Survival (The long-term opportunities and pitfalls of investing in the stock market) Getting Started in Futures, 3rd Ed. How to Invest in Canadian Securities Classroom Instruction that Works: ResearchBased Strategies for Increasing Student Achievement The Internet Investor, 2nd Ed. (Internet sites for personal finance and investing) Guarantee Your Childs Financial Future: Practical Solutions for Todays Parents Personal Finance on the Web Money Logic: Financial Planning for the Smart Investor John Neff on Investing Whats Your Net Worth? Gordon Papes 2001 Buyers Guide to RRIFs and LIFs The Real Life Investing Guide (An introductory guide to encourage youth to begin investing) Globe and Mail Retire Right Money and Youth Essential Finance: Investing Basics 50 Tax-Smart Investing Strategies The Economist Books Pocket Investor Taming Personal Debt Words that Move the Worlds Markets: The Greenspan Effect Stock Market Panic Everything You Always Wanted to know About RIFsbut Were too Young to Ask
Canadian Securities Institute Harper Collins Penguin Books of Canada, Ltd. Nelson ITP Nelson ITP Nelson Canada Ltd. Warner Books Warner Books John Wiley & Sons
Lofton, Todd Marzano, Robert J., Pickering, Debra J., & Pollock, Jane E. Maude, J. Timothy McLean, Benjamin Michaels, Jonathan Milevsky, Moshe & Posner, Michael Mintz, Steven L., Neff, John B.,& Ellis, Charles D. Openshaw, Jennifer Pape, Gordon & Tafler, David Pollack, Kenan & Heighberger, Eric
Harper-Collins Publishers McGraw-Hill Companies John Wiley & Sons Stoddart John Wiley & Sons Perseus Books Prentice Hall Canada McGraw-Hill Ryerson, Ltd.
Polson, Kerk Rabbior, Gary Robinson, Marc Rosentreter, Kurt Ryland, Phillip Sampson, Paul Sicilla, David B. & Cruickshank, J. Skarica, Davd Tafler, David Thomsett, Michael C. Wright, Sharon Saltzgiver
Penguin Books of Canada, Ltd. Canadian Foundation for Economic Education DK Publishing Stoddart John Wiley & Sons McGraw-Hill Ryerson, Ltd. McGraw-Hill Ryerson, Ltd. Productive Publications ITP Nelson John Wiley & Sons John Wiley & Sons
2001 1999
119
Magazines
Publications listed are readily available at most news stands and bookstores. 1 2 3 4 5 6 7 8 9 Equity features womens ideas on making and investing money Green provides a variety of financial information Individual Investor includes financial news, trading updates and personalized portfolios Internet Investor a guide to online personal finance Investors Digest of Canada reports on Canadian investments IE: Money Magazine a Canadian magazine of personal finance and investing, published six times a year Money tips on stocks and mutual funds Money for Women guide to investing, saving, planning and using the Web MoneyMinded a personalized and practical guide to saving, investing borrowing and spending
10 Money Talks a Canadian magazine on investments for individual investors 11 Mutual Funds Magazine - profiles stocks and mutual funds daily 12 Twenty$omething personal finance magazine for the next generation of investors 13 Worth Magazine daily news from the world of finance, access to top financial experts and tips and tools to help your money grow
Software
Canadian Loan Spread Calculator Pro view loan term comparisons Checkbook for Excel v3.1b assists in managing chequing accounts Excel 2000 a spreadsheet program Fund Manager manages investment portfolios Investment Basics educational multimedia introduction to investing Loan Calculator! Plus v2.1c compute loans, interest, and amortization Loan Spread Calculator Pro view loan term comparisons LoanAmortizer 4.1 Enterprise calculates principal and interest Lotus 1,2,3 a spreadsheet program Managing Your Money v3.0 tax and financial planning features MetaStock Pro professional program for charting and analyzing stocks Microsoft Money 2002 Deluxe assists with personal finances, financial planning, investing and taxes Personal Stock Monitor Gold v5.1.2 helps monitor stock portfolios Quicken 2002 Deluxe assists with personal finances, financing planning, investing and taxes Trading Solutions helps to analyze financial market data WinStock Pro v2.6.0 a stock tracking program
120
Bank of Canada http://www.bankofcanada.ca A collection of over 6 000 international financial resources http://www.canadianfinance.com Banking information http://www.cba.ca Business and financial terms http://www.cnnfn.com Financial education and understanding http://www.finpipe.com All-encompassing financial information guide http://www.fool.com Mutual funds http://www.fundlib.com A database of financial and economic information http://www.finweb.com Investing basics http://www.investorED.ca Investment articles http://www.investorguide.com Glossary of terms http://www.investorlearning.ca Risk and return http://www.mainstayinv.com Rule of 72 http://www.moneychimp.com Tools http://www.moneysense.ca Canadian Institute of Financial Planning http://www.mutfunds.com
Investor protection http://www.osc.gov.on.ca Latest market news http://www.quicken.ca All financial instruments http://www.royalbank.com All financial instruments http://www.scotiabank.ca Money supply http://www.rcmint.ca/en/ Rule of 72 http://www.ruleof72.net Financial statistics http://www.statcan.ca Mutual funds http://www.tdbank.com Market commentaries and financial research http://www.tdwaterhouse.ca Stocks http://www.tsx.ca Annuities http://www.teachmefinance.com Compound interest http://wwwebmath.com Money, budgeting http://www.yourmoney.cba.ca Wilfrid Laurier National Secondary School Stock Market Competition http://invest.wlu.ca
121
122
123
b. Provide your client with the forms and/or spreadsheet and/or database to monitor investments made. c. Read the portfolio project report and presentation rubrics. d. Discuss and assign tasks for the completion of your portfolio project.
124
All members contributed ideas. All members of our group listened carefully to the ideas of others. All members of our group encouraged others to contribute their thoughts and ideas. We made certain all members of our group understood the work. Our group stayed focused on the task. All members of our group paid attention in class. All members of our group participated and shared the work. Each member of our group did his/her portfolio homework consistently. Each member of our group did some independent research which was then contributed and/or shared with the group. Summary of group responses to the scale _____________________________________________________________________________________________ _____________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ Areas for improvement as determined by the group ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________
125