FINANCIAL ANALYST: INVESTING MONEY MAKES MONEY
LESSON PLAN OVERVIEW
Career: Financial analysts make business recommendations for an organization based on analyses of market trends, the financial status of the company and the predicted outcomes of a certain type of deal. Analysts must understand investing strategies such as using the stock market to increase the company’s capital. Financial analysts must also understand the concept of compound interest
Lesson: This lesson plan highlights some of the skills a financial analyst uses on a daily basis. Students will learn how to calculate compound interest and will experience investing in the stock market.
Grade Level: Middle Grades
Learning Objectives:
〉 Students will investigate compound interest.
〉 Students will gain a better understanding of a career in financial analysis by investing an imaginary $10,000 in the stock market.
〉 Students will gain an insight into the financial analyst profession, including common job tasks, salary, career pathway, and credentials required to perform the job
TEACHER GUIDE
Lesson Instructions: This lesson plan will help you demonstrate some of the skills and procedures used by financial analysts to students. Begin the lesson by reading the Class Message below to your students, then have them watch the recommended career video. Afterwards, facilitate a discussion using the Class Questions listed below.
After the discussion, students will work on two activities. Each activity has a printable worksheet with student instructions and areas to record their work. Have students read their worksheets before beginning each activity.
You should also familiarize yourself with the student worksheets to provide assistance or demonstrate procedures when needed and to help facilitate the discussion that ends the activity.
Class Message: Today we are going to explore the career of a financial analyst. Does anyone know what the word finance means? How about analyst? (Teacher defines both words Finance = having to do with money; Analyst = someone who analyzes or evaluates data.) We’ll discuss some of the common tasks financial analysts perform in their work. We’ll also learn about the amazing power of compound interest and about using stocks as an investment option to increase the wealth of a company or individual client
Financial analysts provide detailed financial reports to their clients such as monthly statements on profit and loss or the gains and losses in personal or business investments. They use math and analytical skills to help guide their clients in making good financial decisions.
Let’s watch this brief video to better understand the career of financial analysts and what they do for the businesses or individuals they work for.
Financial Analysts: A Day in the Life (http://tn-caps.com/r/68VFA)
Class Discussion Questions:
〉 What do you know about the stock market? - Possible responses: stocks are investments in certain companies. Allow students to answer questions and provide responses
〉 Would you be happy if you could double your money by doing nothing more than waiting? How long would you be willing to wait to double your money? - Possible responses: depends on what I need the money for. Allow students to answer questions and provide responses.
〉 Would you like a job using math to help clients make good financial decisions?Possible responses: yes, no, maybe? Encourage yes’s and maybe’s to look deeper into this career. Allow students to answer questions and provide responses.
Activities Overview: This lesson plan includes two student activities. In Activity #1, students learn about investing in the stock market. Activity #2 challenges students to design a business plan and present it to a bank in order to request a business loan.
Read and familiarize yourself with the student worksheet for each activity
Activity #1: Pennies a Day
This activity demonstrates the power of compounding interest over time
Activity Instructions:
〉 Write the following on the board: “$1,000,000.00 versus $0.01.”
〉 Ask students this question: WOULD YOU RATHER HAVE A PENNY THAT DOUBLES EACH DAY FOR ONE MONTH OR $1 MILLION?
〉 Keep a record on the board of who choses which option.
〉 Facilitate the introduction of the activity.
〉 Ask students to calculate the amount of pennies they would have after 31 days of doubling. (Value in Dollars - Day 1 ($0.01), Day 2 ($0.02), Day 3 ($0.04), etc.)
〉 Discuss how high the final answer is and how this is an example of the power of compound interest over time.
Activity Results:
〉 For example, what would be the amount of interest be for a three-year loan of $10,000 at an interest rate of 5% that compounds annually?
$10,000 [(1 + 0.05)3 – 1] = $10,000 [1.157625 – 1] = $1,576.25
〉 Find the amount of money you will make on your new saving account which is compounding 10% annually for 2 years.
$10,000 [(1 + 0.10)2 – 1] = $10,000 [1.21 – 1] = $2,100.
〉 Find the amount of money you will make on your new checking account which is offering 3% compounded annually for three years. Your initial investment deposit into this new checking account is $16,000
$16,000 [(1 + 0.03)3 – 1] = $16,000 [1.092727 – 1] = $1,483.63
〉 Suppose you have a credit card with an 18% annual compound interest rate. Is this going to help make you money or cost you money? Explain. You pay the credit card company the interest payment. This is the opposite of a bank paying you, so you will lose money if you keep a balance on your credit card. That is why it’s important to always pay off your credit card balance in full.
Activity Discussion:
〉 How can compound interest be both positive and negative? Possible responses: Compound interest is good when you have savings and investments. Compound interest hurts you financially when it is associated with debt such as car loans, credit card debt or home loans.
〉 Why is time so important when investing? Allow students to answer questions and provide responses. The more time you allow compound interest to work in your favor, the more money you make.
〉 Do you enjoy learning how to grow money? Would you like a career as a financial analyst? Why or why not? Allow students to answer questions and provide responses.
Activity #2: Investing in Stocks
This activity demonstrates how financial analysts help companies invest profits in the stock market to increase their wealth.
Activity Instructions:
〉 Hand out the student worksheet and divide students into groups of 3 to 5.
〉 Walk students through the vocabulary of stock investing.
〉 Each group should invest in 5 stocks they are familiar with (ex: Apple, Inc.).
〉 A 2% commission is to be paid for every stock transaction, buying and selling.
〉 Each group is to keep a journal of transactions. The timeline for this activity may be from one week to multiple weeks depending on how much time you wish to spend on the activity. The longer you play the game, the more it helps reinforce longer-term investment skills.
〉 On the last day, students sell their stocks and report on their portfolio performance.
〉 Students will present their results to the class.
Activity Discussion:
〉 What did you learn about investing in stocks from this activity? Possible answers include, I learned that different stocks gain and lose value at different rates.
〉 Did the initial price of the stock influence your purchase decision? Why or why not? The larger the initial price, the fewer shares you can buy.
〉 Did any national or international events affect the value of your stocks? - Possible answer includes yes, political instability or politics impact the stock market
〉 Would you want to work as a financial analyst and trade stocks for a living? Why or why not?
CAREER INSIGHT
Career Insight: This lesson plan highlights some of the skills a financial analyst uses on a daily basis to advise companies and individuals on making financial decisions. See the Employers in My Area section to contact businesses and organizations in your area about classroom demonstrations, onsite visits, or other additional career exposure opportunities.
Featured Career:
Financial Analyst
Career Descriptions: Financial analysts provide guidance to businesses and individuals making investment decisions. They assess the performance of stocks, bonds, and other types of investments.
Financial analysts typically do the following:
〉 Recommend individual investments and collections of investments, which are known as portfolios
〉 Evaluate current and historical financial data
〉 Study economic and business trends
〉 Examine a company’s financial statements to determine its value
〉 Meet with company officials to gain better insight into the company’s prospects
〉 Assess the strength of the management team
〉 Prepare written reports
Other Names for this Career: Securities Analyst, Trust Officer, Equity Research Analyst, Financial Analyst, Portfolio Manager, Investment Analyst, Real Estate Analyst, Credit Products Officer, Planning Analyst, Analyst
STANDARDS ALIGNMENT
Activities #1 and #2:
Mathematics Standards:
〉 6rite, read, and evaluate expressions in which variables stand for numbers
c. Evaluate expressions at specific values of their variables. Include expressions that arise from formulas used in real-world problems. Perform arithmetic operations, including those involving whole number exponents, in the conventional order when there are no parentheses to specify a particular order (Order of Operations).
〉 Solve multi-step real-world and mathematical problems posed with positive and negative rational numbers presented in any form (whole numbers, fractions, and decimals).
〉 Use variables to represent quantities in a real-world or mathematical problem, and construct simple equations and inequalities to solve problems by reasoning about the quantities.
a. Solve contextual problems leading to equations of the form px + q = r and p(x + q) = r, where p, q, and r are specific rational numbers. Solve equations of these forms fluently. Compare an algebraic solution to an arithmetic solution, identifying the sequence of the operations used in each approach
〉 Use proportional relationships to solve multi-step ratio and percent problems. Examples: simple interest, tax, markups and markdowns, gratuities and commissions, fees, percent increase and decrease, percent error.
English Language Arts
〉 Demonstrate command of the conventions of standard English grammar and usage when speaking and conventions of standard English grammar and usage, including capitalization and punctuation, when writing.
〉 Describe how a narrator’s or speaker’s point of view influences how events are described.
TN School Counseling Model and Standards Policy 5.103
〉 Develop high expectations for achievement
〉 Articulate belief that postsecondary education and life-long learning are necessary for long-term career success
〉 Work independently
〉 Practice effective technology skills
〉 Develop and articulate postsecondary education and career aspirations
EDUCATOR RUBRIC
ITEM
Following Instructions
Journal of Transactions
Does Not Meet Expectations
Student could not or would not follow along with the instructions, thereby influencing their partner and not finishing the activity.
Team Journal was sloppy and/or missing important transaction data.
Meets Expectations Exceeds Expectations
Student followed instructions and completed the activity in the stated timeline.
Student followed instructions and completed the activity in the stated timeline. Student was attentive during all parts of the activity including the reporting sessions.
Team Journal was organized and contained accurate records of all transactions. Final portfolio statement was accurate.
Report on Portfolio Progress
Report was poorly prepared and/or did not accurately represent the portfolio’s progress.
Report was planned and well-coordinated and showed strong evidence of preparation.
Team Journal was organized and contained accurate records of all transactions. Final portfolio statement was accurate. Report was highly presentable showing attention to aesthetic detail.
Report was planned and well-coordinated and showed strong evidence of preparation. Each member played a part in the presentation.
Team Work Did not work well with teammate. Worked well with teammate. Worked well with teammate and exhibited leadership.
ACTIVITY #1: PENNIES A DAY
Introduction: Some financial analysts work with individuals or families to help them make informed choices on their finances. Many families are unaware of the powerful potential of something called “compound interest.” Financial analysts understand the power of compound interest and it can help families and businesses build wealth
What is compound interest?
〉 Compound interest (or compounding interest) is interest calculated on the initial principal, which includes all of the accumulated interest for previous periods of a deposit or loan.
〉 In order to calculate compound interest, you need to know the number of compounding periods. This makes a significant difference in interest earned or paid.
〉 Banks provide compound interest on savings deposits.
〉 Banks charge compound interest on home, automobile, and other loans.
〉 Compound interest works for you when it applies to your savings. You make money!
〉 Compound interest works against you when it applies to your debts, costing you money.
Activity Description: Today, we are going to get a better understanding of compound interest and the positive and negative impacts it can have on personal finances. Most financial advisors can double their clients’ money every 8-12 years by investing in stocks or funds that average 6-8% return annually. Would you like to double your money? To begin, let me ask you a simple question.
Part 1: Pennies a Day
Would you rather have a penny that doubles each day for a month or $1 million? Think about your answer to the question before you continue.
Using the chart on the following page, calculate the amount of money you would have after 31 days of doubling. (The values are in dollars - Day 1 ($0.01), Day 2 ($0.02), Day 3 ($0.04), Day 4 ($0.08), etc.).
Activity Discussion:
〉 What part of this exercise surprised you?
〉 Why is time so important when investing?
1
2
Which would you choose: A penny that doubles each day for a month or $1 million?
Part 2: Calculating Compound Interest:
Compound Interest = Total amount of Principal and Interest in future less Principal amount at present = [P (1 + i)n] – P = P [(1 + i)n – 1]
(Where P = Principal, i = nominal annual interest rate in percentage terms, and n = number of compounding periods.)
For example, take a three-year loan of $10,000 at an interest rate of 5% that compounds annually. What would the amount of interest earned be?
Answer: $10,000 [(1 + 0.05)3 – 1] = $10,000 [1.157625 – 1] = $1,576.25
Calculate these compound interest problems:
〉 You opened a $10,000 savings account with a 10% interest rate that compounds annually. How much interest income will you earn in 2 years?
〉 Find the amount money you will make on your new checking account which is offering 3% interest compounded annually for three years. Your initial deposit into this new checking account is $16,000.
〉 Suppose you have a credit card with an 18% annual compound interest rate. Is this going to help make you money or cost you money? Explain your answer.
Activity Discussion:
〉 How can compound interest be both positive and negative?
〉 Do you enjoy learning how to grow money?
〉 Would you like a career as a financial analyst? Why or why not?
ACTIVITY #2: STOCK GAME
Introduction: Financial analysts gather important information about the health of a company and provide that information to the decision makers so they can make more informed decisions. Financial analysts often make suggestions for investment strategies to grow the wealth of the company further. This often involves investing in the stock market. To invest in the stock market, financial analysts must evaluate individual stocks and make choices based on a variety of sources of information. Financial analysts must also track investment activity to evaluate the results of investment decisions and report their findings to the company owner or manager.
Activity Description: This activity helps students learn about basic investing principles, current events, the basics of how the economy works, money management skills, basic math, reading comprehension, and writing skills related to investing in the stock market. The parts of this lesson include:
〉 What is a stock?
〉 How to read stock market tables.
〉 Introduce the simulation.
〉 Choose companies to invest in.
〉 Keep a journal of investment activity.
〉 Report on portfolio performance.
What is a Stock? A stock represents a share in the ownership of a company. If you buy a company's stock, then you are an owner, or shareholder, of the company. A stock represents a claim on the company's assets and profits. Stocks are also known as equities.
How to read a stock market table: Here is a sample line from a stock market table for the stock of the Beyond Meat company.
Stock ticker symbol
The ticker symbol is a unique identifier of a company's stock. The stock symbol, BYND, is similar to the company's name, Beyond Meat.
Company Name This is the name of the company offering the stock.
Sales 100s The number of shares that were traded the last day this stock traded. The number is given in hundreds, so you need to add two zeros to the sales number to get the actual number of shares traded.
Hi The stock's highest price the last day this stock traded.
Low The stock's lowest price the last day this stock traded.
Last The stock's last traded price, also sometimes called the closing price.
Change The amount of change of the stock's closing price and the prior trading day's closing price (two trading days ago). A "-" represents a negative change, or loss, in the stock’s value. A “+” represents an increase in value.
Begin Simulation
〉 Each group (or individual) begins with $10,000. With this money, the group must spend at least $5,000 on stocks (including commissions). The remainder may be kept in the individual’s or group’s zero-interest checking account.
〉 Each group MUST invest in 5 stocks. In selecting stocks, students MUST choose companies those products or services they are familiar with. Try searching for your favorite company stocks here:
Google Finance (http://tn-caps.com/r/68FA4)
Yahoo Finance (http://tn-caps.com/r/68FA5)
Market Watch (http://tn-caps.com/r/68FL1)
〉 A 2% commission is to be paid for every stock transaction (buying or selling a stock).
〉 Each individual or group should keep a journal of their activities and thoughts and a transaction history of all buys and sells. In addition, the group is responsible for keeping track of the current portfolio's market value (plus the cash in the checking account).
〉 The timeline for this activity may be from 1 week, to multiple weeks depending on how much time you wish to spend on the activity. The longer you play the game, the more it helps reinforce longer-term investment skills. In addition, this will keep students interested in current economic events while reinforcing fundamental skills.
〉 On the last day students will sell their stocks (don’t forget commission) and report on their portfolio's value and what they learned during the activity.
Record the Transactions
The Team Journal should include the following (and be accurate to the penny):
Initial Balance: $10,000.00
Stock Purchased (The Ticker Symbol)
Cost Per share: $_______
number of shares = $________
Commission (x .02) = $________
Total cost ________
Remaining Balance: _______
Repeat this process and record this information for each and every individual stock purchased.
Formulas to remember:
Remaining Balance = initial balance – (stock purchase amount + commission) + (stock sale amount – commission)
Stock Purchase Amount = price per share x number of shares
Commission = stock purchase amount x $0.02
Activity Discussion:
〉 What did you learn about investing in stocks from this activity?
〉 Did the initial price of the stock influence your purchase decision? Why or why not?
〉 Did any national or international events affect the value of your stocks?
〉 After playing the stock game, would you want to work as a financial analyst and trade stocks for a living? Why or why not?
