Math and The Stock Market.

Now that you know why the stock market used fractions, its time to look at the math involved in the stock market and there is quite a bit.

First off, anyone who has a portfolio with a broker or of their own, knows the portfolio is divided into a pie chart showing how much is in stocks, bonds, cash, and mutual funds.  If your portfolio does not have that much diversity, it could show how many shares of each stock you've invested in.

Second, it is possible to calculate the return or money you are making off your portfolio by using this equation.  (Current Value/Starting Value - 1) * 100 tell you how much you made or lost for the entire portfolio.  This is important because so many people are interesting in building a portfolio which will support them for their lives, throughout their retirement.

Third, people calculate the stock return so they know if a stock is performing poorly or well so they know if they want to keep it or sell it off.  The formula is similar to the last one but this time its
(Last price quoted/price paid - 1) * 100.  This formula can be applied to each stock to determine its return so you know if you want to keep it.

Here are other equations associated with the stock market that investors need to know.

1. Earnings per share is a part of a company's profit set aside for common shares which is an indicator of how profitable a company is.  The formula (Net Income - Preferred Dividends)/Total Outstanding Shares.

2. Return on Equity also known as a rate of return on net assets often is associated with the company showing its financial performance.  It is found by (Net Profit/Shareholders Equity * 100 ) which give a percentage. 

Now if you check this site out  there are lessons on Risk and Return, Return on Investment, Investing Options, Stocks and Stock Market, Stock Investment Analysis, and Bonds.  The Stock Market lessons are quite interesting because there are lessons on investing in stocks, stock market table, stock market simulation, buying shares and determining how many shares one can afford, percent price change in shares, and forms to fill out for buying and selling stocks.

In the Stock Investment Analysis, there are exercises for price earnings ratios for stocks, and common stock valuations while the Bonds section has information on buying and investing in corporate bonds.  Information that few people really understand.  Even I have someone who does all that for me because I don't know how to go about it.

The stock market simulation uses most of the information provided to give students an experience in investing in the stock market.  This activity could take as little as a week but its recommended the simulation be run the full year to give students a better understanding of how it works.  Throughout the designated time period, all students invest a specific amount in 5 stocks which they will follow over a certain time period.  they may buy and sell but they must pay a 3% commission each time they buy or sell a stock.

They have to fill out transaction forms every time they buy or sell stock, monitor the portfolio and if you want at this point, you could have them calculate the overall worth increase or decrease of its value each week.  This process continues until the end of the period at which point they sell off all the stocks to determine how much money they made or lost overall.

Its a nice basic simulation that you as teacher could add to so students are doing a bit more mathematics.  Its up to you.

Let me know what you think, I'd love to hear.  Have a great day.