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Lecture 9 notes Oct 18 - Simple I nterest = principle $1250...

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Simple Interest = principle × annual Interest × Adjustment Factor $2700 x 10% x ¼ year = 67.50 Yield = $1250 ÷ $510 = 245%!! Stock Market Transactions (slides on Website) o Bid and Ask Price System o Market Orders to Buy and Sell Shares Short Sales o What is a Short Sale? A Step by Step Example of a Short Sale o Risks Associated with Short Selling No Theoretical Limit to Losses Termination of Short Selling Agreement Short Seller is Liable for Dividends Short Calls Short Selling Rule Market Buying o What Is It? Implications of Buying Stock on Margin Margin Calls Margin Buying Rule Example of a Margin Call Stock Options (Puts and Calls) (Chapter 4 Lab Manual p357) o What is an Option? Four Characteristics of Any Option Contract Reading Option Information in the Newspaper Call Option: Step by Step Example Put Option: Step by Step Example Factors Affecting Option Prices
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Intrinsic Value Time Value Mutual Funds (Chapter 5 Lab Manual p385-389) o What is a Mutual Fund? Characteristics of Mutual Funds Open Ended Investors Have Right of Redemption Valuation of Shares in a Mutual Fund o Prod of Investing in Mutual Funds o Cons of Investing in Mutual Funds
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Stock Market Transactions Straigh Buys/Straight Sells o The most common types of transactions in the stock market o Buy low/sell high strategy o Buy shares...hold for a period of time...sell shares at future date (hopefully a higher price, this realizing a profit/capital gain) o When you buy stock and hold it, its referred to as taking a “long position” o Bid and Ask Prices Stock Markets work on the basis of a Bid and Ask price system Call up a stockbroker and ask for a quote on ABC Company Broker replies...ABC is currently trading at a BID Price of $9.5 to an ASK Price of $10 ASK price is the lowest amount per share that anyone is currently willing to sell ABC BID price is the highest amount per share that anyone is currently willing to pay for a share of ABC
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