Gordon Rule: Instructions
Assume you have $100,000 in savings. Create a portfolio of securities worth $100,000 at the start.
Decide what financial instruments you would like to use then find their current prices in the newspaper (Wall Street Journal, New York Times or on line e.g. http://money.cnn.com/data/markets/
Note and reference the source of your information and the date. Calculate your holding of each security based on current prices.
Create a schedule showing the stocks or bonds purchased and the price (use the closing price of the day). See Attachment #1.
Provide short answers to the following questions:
What objectives do you have for this portfolio? Did you choose it to maximize short-term gain, long-term security or some other objective?
What have you done to ensure that you have a diversified portfolio of stock?
What have you done to reduce market risk?
Explain how each of the following event would affect the value of your portfolio:
An increase or decrease in interest rate
A recession
Rapid inflation
A depreciation of the U.S. dollar
Submit the schedule and short answers to the questions. Place assignment in the relevant drop-box by the due date.
Gordon Rule Paper Due
11/15/2015 at 11 p.m.
Key numbers for stock watchers:
Price – Price of the last transaction before the market closed on the previous day of trading. The newspaper may report high and low from the previous day as well as change from the previous day closing price.
Dividend- share of profit distributed to eligible shareholders; given on a per share basis. Usually, it is based on dividend paid out during the previous year.
Dividend Yield (dividends expressed as a percent of the stock price) = (Dividend per share/Price per share) x 100
Price – Earnings Ratio = Earnings per share/Price per share. Earnings are the difference between the company’s revenue from sale minus its cost of production. Typically, the price/earnings ratio is 15. Variations may indicate over or under valuation of the stock.
Attachment #1 My Portfolio
Company/Ticker Name/Mutual Fund
Price
# of Stocks Purchased/ Amount of Bonds
Cost in US$
Bonds:
Bank A|c:
Total Spent
$
Increase number of rows as needed
Reference/Source:
Hints:
Many students pick a mix of common stocks, mutual funds, and bonds. Some choose low-risk but low-yielding bank accounts and certificates of deposits.
Portfolio heavily invested in cyclical stocks (stocks whose value vary with the business cycle) will give low returns in the event of a recession. Bonds and cash perform poorly in the event of rapid inflation. Foreign denominated assets may give high returns if the dollar depreciates. Interest rates swing may cause large changes in the value of bond heavy portfolios.