InvestmentPlanningWeek2_2 - FSU Certificate in Financial...

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FSU Certificate in Financial Planning Investment Planning © Florida State University Page 1 Lecture Title: Week 2: Dividends, Economy, Financial Statements, Bonds Lecture 2: Investment Basics, Part 2 Introd uctio n How do we make investment decisions? How do various economic activities affect the market prices of stocks? Why and how do interest rates fluctuate and can the government influence them? How can one tell if company A is financially stronger than company B? Are there trends in price patterns that can help predict future prices? Why are there so many different kinds of bonds and how do they relate to each other? This week we answer these and other questions as we take an in-depth look at the economy. We discover methods of fundamentally assessing companies and interesting ways to interpret historical data. We'll look hard at the workings of the bond market and learn a bit about dividends. As a reminder, occasionally the text makes reference to a formula or equation from chapters we haven't yet covered. Ignore those for now; however, examples using basic calculator functions should be followed and practiced. Objectives The objective of this lecture is: To identify key investment terms, concepts, and vehicles that form the foundation for modern investment planning, with a special emphasis on dividends, the macroeconomic environment, financial statements, and bonds. Note: This lecture is organized around the textbook chapters reading assignment. Within each chapter, I'll highlight the concepts that I believe are most important for your work as a Certified Financial Planner™ or important to know for the CFP® Certification Examination.
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FSU Certificate in Financial Planning Investment Planning © Florida State University Page 2 Lecture Presentation Chapter 8: Stocks & Dividends Dividends are the only cash payments regularly made by corporations to their stockholders. They are decided upon and declared by the board of directors and can range from zero to virtually any amount the corporation can afford to pay (typically, up to 100 percent of present and past net earnings). Although roughly three-fourths of the companies listed on the NYSE pay dividends, the common stockholder has no specific promises to receive any cash from the corporation since the stock never matures, and dividends do not have to be paid . Therefore, common stocks involve substantial risk because the dividend is at the company's discretion and stock prices typically fluctuate sharply, which means that the value of investors' claims may rise and fall rapidly over relatively short periods of time. The following two dividend terms are important: 1. The dividend yield is the income component of a stock's return stated on a percentage basis. It is one of the two components of total return. Dividend yield typically is calculated as the most recent 12-month dividend divided by the current market price.
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