Welcome to the world of market indices! In this lesson, we'll explore how these essential tools track the performance of stocks and bonds, providing valuable insights for investors.
Get ready to:
Describe the different markets where stocks and bonds are traded, understanding their structures and functions.
Analyze various market indices for stocks and bonds, such as the Dow Jones Industrial Average, S&P 500, and Bloomberg Barclays Aggregate Bond Index, learning how they are calculated and what they represent.
By the end of this lesson, you'll be able to interpret market indices and gain a deeper understanding of market trends and performance. Let's explore the world of market indices!
Scenario: Imagine you want to create an index to track the performance of five of your favorite snacks.
Choose five snacks and assign each an initial "price." Track the prices of these snacks over a week (you can simulate price changes). At the end of the week, calculate the average price change in your snack index. What does this tell you about the overall "performance" of your snacks?
How does your simple snack index relate to real-world market indices like the Dow Jones or S&P 500? What are the similarities and differences?
Why is it useful to have market indices? What information do they provide to investors?
If a major company in the Dow Jones Industrial Average experiences a significant drop in its stock price, how might that affect the overall value of the index?
Research a market index that you find interesting. What are its components? How has it performed over the past year? What factors might have influenced its performance?
This lesson provides a great overview of stock and bond market indices, essential tools for investors to understand market trends and performance. Let's break down the key takeaways.
A stock market index acts like a thermometer for the stock market. It tracks the performance of a specific group of stocks, giving investors insights into the overall market direction.
PSE Composite Index: A prime example in the Philippines, the PSEi comprises 30 carefully chosen companies representing various sectors. Its fluctuations reflect the general health and sentiment of the Philippine stock market.
Sector Indices: These indices zoom in on specific sectors like financials, industrials, or property. They allow investors to track the performance of companies within a particular industry.
Financial news sources often display stock market data in tables, which might seem confusing at first glance. Here's a quick guide:
Value: This represents the current value of the index.
Chg: This indicates how much the index value has changed from the previous trading day. A positive change means the market went up, while a negative change signifies a decline.
%Chg (% Change): This shows the percentage change in the index value compared to the previous day. It provides a relative measure of the market's movement.
The lesson briefly touches upon the process of buying and selling stocks, highlighting key terms like bid size, bid price, ask price, and ask size. These terms are crucial for understanding how stock orders are placed and executed in the market.
Similar to stock market indices, bond market indices track the performance of a group of bonds. In the Philippines, the primary platform for bonds is the Philippine Dealing and Exchange Corporation.
The lesson highlights government bonds, which are debt securities issued by the government to raise funds. These bonds come in various maturities, commonly referred to as treasury bills, treasury notes, and treasury bonds.
The lesson concludes with an example of an investor, Rachel, who owns shares in two companies. To determine which company holds a greater total value of her shares, you'd perform the following calculations:
Company A: 2,000 shares * P980/share = P1,960,000
Company B: 15,000 shares * P250/share = P3,750,000
Therefore, the total value of Rachel's shares is greater in Company B.
Track your investments like a pro! Here's a video lesson to understand more about different markets for stocks and bonds, and how to analyze market indices!
Let's dive into the exciting world of stock and bond markets! This assessment challenges you to identify different markets where these securities are traded and analyze various market indices used to track their performance. You'll demonstrate your understanding of how these indices reflect market trends and investor sentiment.
Instruction: Use online resources, critical thinking, and the provided information to answer the following questions. Justify your answers with explanations and calculations. Upload your documents on this google drive link: Module 3 Lesson 3 Activity Outputs
(Note: Make sure your file name will be your Section-Year-Surname-Given_Name-Module#-Lesson#-Output#, for example: [GAS11-DelaCruz-Juan-Module1-Lesson1-Output1]. Wrong file name will subject to score deduction.)
Scenario: You are tracking the performance of the Philippine Stock Exchange Composite Index. You observe that the PSEi value today is 6,500, while yesterday's value was 6,400.
Calculate the "Chg" and "%Chg" for the PSEi. Explain what these values represent and their significance for investors.
Real-World Application: Research the sector indices available on the Philippine Stock Exchange.
Choose two sector indices and compare their performance over the past month. What factors might explain the differences in their performance? How might an investor use this information to make investment decisions?
Concept Application: Explain the purpose of a bond market index.
How is a bond market index constructed? Provide an example of a bond market index and discuss its significance for fixed-income investors. You may want to research bond indices on the Philippine Dealing & Exchange Corp.
Critical Thinking: The Philippine government regularly issues treasury bills, treasury notes, and treasury bonds.
Research a recent issuance of government bonds. What was the coupon rate and tenor (term) of the bond? How do these bonds contribute to the overall bond market in the Philippines?
Stock Table Analysis: You are considering buying shares of Company X. The current stock table shows a Bid Price of ₱50 and an Ask Price of ₱51. The Bid Size is 10,000 shares, and the Ask Size is 5,000 shares.
Explain what these values mean. If you wanted to buy 1,000 shares of Company X, what price would you likely pay? If you wanted to sell 1,000 shares, what price would you likely receive? Explain your reasoning.
Lesson 3 Complete! Ready to test your knowledge of stocks and bonds? Head to the Module 3 Assessment!