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Understanding IPOs and Calculating Return on Investment in Stock Trading

This guide introduces the concept of IPOs and delves into stock trading basics through practical examples. It covers buying and selling shares at different price points, calculating gains and losses, and determining the return on investment (ROI) across various difficulty levels from Novice to Grand Master. Detailed examples illustrate how to compute percentage changes in investment and use the formula for ROI effectively. A homework exercise encourages you to calculate your investments' returns in a stock market game, reinforcing the concepts learned.

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Understanding IPOs and Calculating Return on Investment in Stock Trading

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Presentation Transcript

  1. Problem of the day…. • What is an IPO?

  2. Problem of the day… • The bank returns a check cashed by you because there was insufficient funds to cover the check. The check is called:

  3. Stock Market Basics

  4. Novice Level • Bought 100 Shares x $10.00 = $1,000 • Sold 100 Shares x $20.00 = $2,000 • $2,000 - $1,000 = $1,000 • You gained $1,000 • Assuming no commission was taken by the broker

  5. Apprentice Level • Bought 155 Shares x $12.00 = $1,860 • Sold 155 Shares x $23.00 = $3,565 • $3,565 - $1860 = $ 1,705 • You gained $1,705 • Assuming no commissions

  6. Master Level • Bought 2,200 shares x $20.00 = $44,000 • Sold 2,200 shares x $18.00 = $39,600 • $39,600 - $44,000 = - $4,400 • Loss of $4,400 • Assuming on commission

  7. Grand Master • Bought 200 shares x $20.76 = $4,152 • Sold 100 shares x $ 23.67 = $2,367 • Sold 100 shares x $19.21 = $1,921 • $2,367 + $1,921 - $4,152 = $136 • You gained $136 • Assuming no commission

  8. Return on Investment • Percentage increase or decrease • New Number – Old Number / Old Number • (N – O) / O • Example: • $60.00 original number • $70.00 current number • Calculate percentage increase or decrease: • (70 – 60) /60 = 10/60 = • 16.67% gain

  9. Return on Investment • Beginning Balance of $5,000 in brokerage account • Don’t add or subtract from principal • Current Balance of $4,900 • Calculate return on investment • (4,900 – 5,000) / 5,000 = -100/5000 • = -2%

  10. Calculate Return on Investment Review: Go back and calculate the return on investment from the four previous problems: (novice to grand master)

  11. Answers • Novice: (2,000 – 1,000)/ 1,000 = 1,000/ 1,000= 100% • Apprentice: ( 3,565 – 1,860) / 1,860 = 1,705/1,860 = 91.67% • Master: (39,600 – 44,000) / 44,000 = • 4,400/44,000 = - 10 % • Grand master: (2,367 +1,921 – 4,152)/ 4,152 = • 3.28%

  12. Closure/ Homework Calculate the return on your investments in our stock market game Assume no commissions right now

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