Ray's New Higher Arithmetic · Arts. 266–269 · Unit 16: Percentage: Applications without Time (continued)
72. Stock investments: words and Case I
Goal: Your student reads stock and bond quotations, knows the words of the stock market in the 1880s, and finds the income from an investment.
You'll need
- The book
- A slate, small whiteboard or scrap paper
- A notebook and pencil
What's in the book
Section V, Stock Investments: the stock exchange, U.S. bonds (coupon and registered), short and long sales, bulls and bears, common abbreviations, brokerage, the notation used in the formulas, and Case I with a worked problem.
The lesson, step by step
Warm-up
Ask: If you buy something for less than its face value and it pays a fixed amount each year, is that a better or worse deal for you? Why?
The idea
Read:
A Stock Exchange is an association of brokers and dealers in stocks, bonds, and other securities.
United States Government Bonds are of two kinds, coupon and registered.
Then read how bonds are named:
Thus, "U. S. 4½'s, 1891," means bonds bearing interest at 4½%, and payable in 1891.
Bulls and bears
Read:
A person who buys stock in anticipation of a rise is said to buy long.
and are called bears; while those who buy long endeavor to force the market price up, and are known as bulls.
And the usual broker's fee then:
The usual rate of brokerage is 1/8% on the par value of the stock, either for a purchase or a sale.
Five quantities
Read:
the Amount Invested, the Market Value, the Rate of Dividend or Interest paid on the par value of the stock, the Rate of Income on the amount invested, and the Income itself.
SayThe dividend rate is figured on the par value. The rate of income is figured on what you actually paid.
Work the book's example
A person invests $5652.50 in Mutual Insurance Company stock at 95 cents: what will his income be if the stock pay 10% dividend annually?
At 95 cents on the dollar, $5652.50 ÷ $.95 = $5950 of stock at par. 10% of $5950 = $595 a year.
Practice
Your student works the Case I examples, such as:
If I invest $10200 in Tennessee 6's, new, at 30%, what is my annual income?
(First find the par value bought, then the interest on it.) Answers are printed.
Wrap-up
Ask: Who wants prices to fall, a bull or a bear? (A bear.)
Tip
The book's examples name real 1880 companies and bonds. Prices and rates were what newspapers printed then. They are not advice for today.