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Chapter 13
In-Class Notes
Stock Quotations
• Where can you find stock quotes?
• Stockbrokers, financial newspapers, business sections
of local newspapers, financial news television
networks, financial websites
• Examples of information obtained from a stock
quote
• Ticker symbol, closing price, net change in price,
volume traded, highs and lows, dividend yield, priceearnings ratio
• Firm Analysis
• Annual report, balance sheet, income statement,
firm-specific characteristics, Value Line Investment
Survey
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Economic and Industry Analysis of
Stocks
• Economic Analysis Involves Assessing:
• Economic growth (GDP, fiscal policy)
• Interest rates
• Inflation (CPI)
• Industry Analysis
• Changes in consumer demand
• Threat of new entrants and more competition
• Industry indicators
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Stock Valuation
• Stock Valuation
• Historical price patterns using technical analysis
• Fundamental characteristics using fundamental
analysis
• P/E method: compare your estimated value of
the firm’s stock to its market value to
determine whether the stock is currently
undervalued or overvalued according to
industry standards.
• P/S method: especially popular for valuing firms
that have negative earnings
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Stock Market Efficiency
• Efficient stock market: A market in which
stock prices fully reflect information that is
available to investors.
• Stock selections by an investor will not
consistently beat the market.
• Inefficient stock market: A market in which
stock prices do not reflect all public
information that is available to investors.
• Stock selections by an investor may beat the
market.
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Stock Exchanges
• Canadian Stock Exchanges
• Toronto Stock Exchange (TSX) – senior equity
exchange
• TSX Venture Exchange – public venture capital
market
• Montreal Exchange – derivatives exchange
• Other Stock Exchanges
• NYSE Euronext
• NASDAQ
• American Stock Exchange (AMEX)
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Purchasing or Selling Stocks
• Analyst recommendations
• Brokers and analysts tend to be overly optimistic
about stocks.
• Discount brokerage firm
• Executes transactions but does not offer investment
advice.
• Online brokerage services
• Very low commissions, convenient.
• Placing an order
• Name and class of the stock, buy or sell, number of
shares (board lot vs. odd lot)
• Market order, limit order, and stop orders
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Buying Stock on Margin
• Involves completing a stock purchase with a
small amount of personal funds and a
portion of the funds borrowed from the
brokerage firm.
• If the stock price declines substantially, the
brokerage firm will make a margin call.
• Buying stocks on margin will magnify profits
and/or losses.
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Assessing Performance of Stock
Investments
• Compare Returns to an index
• ER = R – Ri
where
ER = excess return
R = the return on the stock
Ri = the return on the stock index
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