RISKY BUSINESS -- OR NOT!

OVERVIEW

In this lesson, students will learn about stocks and understand what it means to buy stock in a company. Students will develop an understanding that investing in a company's stock involves risk, and will also learn factors that make a company risky. They will read about stocks online, and will discuss factors that make a company risky. Students will watch a segment of WHAT'S UP IN FINANCE? to learn about one instance of risk at the corporate level. They will then review a completed comparison of two companies with very different risk factors listed, and will discuss as a group why one company's stock would be much riskier to buy.

Finally, students will compare three companies' profiles and determine which company's stock would be the riskiest to buy, based on risk factors they have learned. They will list the risk factors of each company in a written analysis. Students will then decide which of the three stocks would be the least risky to purchase.

GRADE LEVEL: 7-12

TIME ALLOTMENT: 3 classes at 45 minutes per class

SUBJECT MATTER: Math, Finance, Economics

LEARNING OBJECTIVES

Students will be able to:
  • Understand the concept of risk
  • Understand the concept of stock ownership
  • Understand the importance of risk analysis
  • Learn techniques for investment
  • Understand the concept of profitability
  • Learn how to compare companies to each other
  • Learn how to analyze risk
STANDARDS

  1. National Council of Teachers and Mathematics
    Principles and Standards for School Mathematics


    Data Analysis and Probability
    • Formulate questions that can be addressed with data and collect, organize, and display relevant data to answer them;
    • Select and use appropriate statistical methods to analyze data;
    • Develop and evaluate inferences and predictions that are based on data;
    • Understand and apply basic concepts of probability.

    Representation
    • Create and use representations to organize, record, and communicate mathematical ideas;
    • Select, apply, and translate among mathematical representations to solve problems;
    • Use representations to model and interpret physical, social, and mathematical phenomena.

  2. JumpStart Coalition for Personal Financial Literacy

    Saving and Investing
    Students will be able to:

    1. Explain the relationship between saving and investing.
    2. Describe reasons for saving and reasons for investing.
    3. Compare the risk, return, and liquidity of investment alternatives.
    4. Describe how to buy and sell investments.
    5. Explain how different factors affect the rate of return of investments.
    6. Evaluate sources of investment information.
    7. Explain how agencies that regulate financial markets protect investors.

  3. Mid-continent Research for Education and Learning (McREL)
    Benchmarks for Economics

    Standard 3
    Understands the concept of prices and the interaction of supply and demand in a market economy

MEDIA COMPONENTS

Video:

watch video
What's Up in Finance, "The Dealmakers" segment

Web sites:

"What Is a Stock, Anyway?"
http://biz.yahoo.com/edu/st/sm_st1.sm.html

MATERIALS

Teachers will need the following supplies:
  • Computer with connection to a screen or television on which to project the Web-based video clips, or computer stations where students can watch the clips
  • Board and/or chart paper
  • "Stock Investing Definitions" Teacher Organizer
  • Answer Key: "Risk Analysis" Student Organizer

Students will need the following supplies:
PREP FOR TEACHERS

  1. Bookmark the Web sites used in the lesson on each computer in your classroom, or upload all links to an online bookmarking utility such as www.portaportal.com.

  2. Preview all of the video clips and Web sites used in the lesson to make certain that they are appropriate for your students, currently available, and accessible from your classroom.

  3. Download the video clips used in this lesson onto your hard drive, or prepare to stream the clips from your classroom.

  4. Print out the "Stock Investing Definitions" Teacher Organizer to copy the terms and definitions on the board.

  5. Print out the Student Organizers: "Risk Factors," "Market Mover," "Company Profiles," and "Risk Analysis." Make enough copies so that each student has one copy of each organizer.

  6. When using media, provide students with a FOCUS FOR MEDIA INTERACTION, a specific task to complete and/or information to identify during or after viewing of video segments, Web sites, or other multimedia elements.


INTRODUCTORY ACTIVITY: SETTING THE STAGE

  1. Open the discussion by asking if any of the students knows what a stock is, or if they own any. Also, ask students if they have any interest in investing in the stock market.

  2. Next, using the "Stock Investing Definitions" Teacher Organizer, write on the board the components of the loan: stock, share, shareholder, public company, risk, profit, market, and valuation. Discuss with the class what each of the terms means.

  3. Discuss about how the stock market works. Explain that stocks are ownership in a company. By investing in stocks, you are essentially taking ownership of a tiny part of a company. The price of a stock is quoted and paid for in dollars. If the stock price goes up beyond what was paid for it, it can be sold for a profit. Earning that profit is the goal of stock investors.

  4. Explain to students that owning stocks is inherently risky because it is not always possible to predict whether the price of the stock will go up or down. Sometimes the price of a stock can move in unpredictable ways. Despite the inherent risk, however, stocks have traditionally outperformed bonds and savings accounts over time.

  5. Have students read the "What Is a Stock, Anyway?" Web site at http://biz.yahoo.com/edu/st/sm_st1.sm.html. Provide students with a FOCUS FOR MEDIA INTERACTION by asking what they think what make the price of a stock go up or down, based on what they read.

  6. Next, ask students to list factors that would make the price of a stock to go up or down. Explain that the price of the stock will generally reflect the health of the company the stock represents. If the company is making a profit, the price of the stock will generally go up. Some of the factors that will lead to a company being more profitable are: a successful new product, a popular market, and a change in management that makes the company stronger.

  7. Then, expand on the idea of risks, or factors that might make a stock price go down. The main issue again is profitability: if a company becomes less profitable or actually loses money, it can push the stock price lower. Some of the risk factors in this area are: an unpopular product, increased competition, and poor management.

  8. Explain that there are also larger issues beyond the specifics of a company's performance that can also impact stock prices. Notably, stocks move up or down due to factors in the national and global economy. Changing interest rates, threats of inflation or recession, and even oil prices in another part of the world are examples of factors that can affect stock prices.

LEARNING ACTIVITIES

  1. Explain to the class that they will be watching a short video on a competition where high school students analyze the risks of buying a company. Explain that one company is going to try to buy the other company, and ask the students to look for the different risks that both companies are considering as they decide whether or not the purchase should happen.

  2. Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to think about how the students in the video are analyzing the risks of the companies involved. Play "The Dealmakers" segment for the class.

  3. Review "The Dealmakers" segment that was viewed, discussing with students why it was risky for Team Tesoro to join with Team Sunoco. (Answer: Explain that Team Tesoro was afraid its stock price would fall and its shareholders would lose money if it became part of a company that was not as strong financially.)

  4. Ask the students to explain why they think that the decisions a company makes, as well as factors the company can't control, can influence the company's stock price. (Answer: Because companies are focused on being profitable, and there are many factors that impact profitability.)

  5. Hand out the "Risk Factors" Student Organizer. Ask students to read the risk factors listed on the organizer and to discuss why each of the factors might make a company less more or less profitable.

  6. Next, ask students to read the company descriptions on the organizer, and then start a discussion about the two companies. Organize the discussion by looking at each of the five risk factors for Company A and Company B. Ask students to explain which company is riskier on the basis of each factor, and why. (Answer: Company A is riskier on the basis of each factor.)

  7. Finally, hand out the "Market Mover" Student Organizer. Ask students to read the organizer, and then start a discussion comparing the stock price movement of the three companies.

  8. Ask students to identify which chart goes with which company, based on the stock price movement. (Answer: Tori's Toybox -- Chart B, Casual Cruiselines -- Chart C, Wholesome Unlimited -- Chart A.)

CULMINATING ACTIVITY

  1. Hand out the "Company Profiles" Student Organizer. Ask students to read carefully through each company. Have a short discussion about each company and its strengths and weaknesses.

  2. Hand out the "Risk Analysis" Student Organizer. Ask students to read through the grid, and explain the rating system (1 - low risk, 2 -medium risk, 3 -- high risk).

  3. Explain to the students that they will be analyzing each of the risk factors that have already been discussed in class. They should consider each factor for each company, and then determine how much risk an investor buying stock in the company would be taking, for each of the factors.

  4. Ask students to complete the grid. Make sure that they know they have to provide a rating and an explanation for the rating.

  5. Discuss which company is the least risky and why. Ask students to explain their answers for each factor. An answer key is provided.

  6. Reiterate to students that owning stocks is inherently risky because of the many variables that affect stock prices. It is not always possible to predict whether the price of the stock will go up or down, even if an investor has done a comprehensive risk analysis.

Lesson plan written by Melissa Donohue


ORGANIZERS FOR STUDENTS

For Teachers
For Students