By Lindsay Fendt
5/6/09
In the seventh chapter of “Math Tools for Journalists” Kathleen Woodruff Wickham explains how to interpret stocks and bonds. Businesses are an important are of investigation for many journalists and as many companies main source of investment is through stocks and bonds they are important to understand.
Wickham begins by discussing the stock market and how to understand the symbols and language used when talking about the stock market. When someone buys a unit of stock they buy a small portion of a company. The value of stock is determined by a variety of factors including supply and demand, publicity and future projections of the company. Another way investors purchase stock is through mutual funds, which are companies that invest money in stocks for profit. When someone buys a share of a mutual fund their money is invested for them and they receive a profit based upon how well the people in the mutual fund company invested their money.
Within the realm of finance are many abbreviations and jargon that is often foreign to journalists. Wickham explains in detail how to read a typical stock table that is often recreated in newspapers. The 52-week high/low shows the highest and lowest price of a given stock. In the next column is the actual name of the stock, which is an abbreviated version of the company name. Next comes the Div column, which stands for dividend and indicates the most recent amount of money paid out to stockholders per share. The PE column stands for price/earnings ration and is the stock price divided by the earnings over a year. The next column is the last column, which is the most recent price of the stock. The final column is the amount of change the stock experienced in that day compared to the last day.
Wickham then moves on to discuss bonds, which are low risk investments with a set interest rate. Investors buy a bond at a certain price and then receive interest on that bond each year. Investors can also sell bonds, if they have an immediate need for cash, for a lower price than they purchased it for. This changes the current yield of a bond. To calculate the current yield you take the interest rate multiply it by the face value and divide it by the price.
Lastly Wickham discusses market indexes. The first market index she mentions is the Dow Jones industrial average. The Dow Jones takes information from key stocks to give an overview of the entire stock market in any given day. Wickham next mentioned NASDAQ, which stands for the National Association of Securities Dealers Automated Quotations. NASDAQ lists the prices of more than 5,000 stocks so that the prices of all stocks are available to the public.
Practice Problems
1) Joe Schmo buys a stock for $500. The original stock was purchased for $800 and has a 5% interest rate. What is the current yield of the bond.
(5% x $800) ÷ $500 = 8%
2) Bob is a hired assasin. Each assasination costs him $150 in “materials” and he charges $5000. What is Bob’s Gross Marigin. (The amount of personal remorse Bob experiences cannot be determined by the information given in this problem.)
$5000 – $150 = $4850 Profit
3) Sally is trying to interpret a poll for a story she is writing about the amount of money people spend on movies. One person in the poll spent $500. The total standard deviation was $100 and the mean was $350. What is their Z-score?
($500-$350) ÷ $100 = 1.5 z-score
4) Arnold is writing a story about a corrupt politicians recent purchase of a mansion. The property was assessed at 25% of the original rate and the house was appraised as being worth $ 1 million. What is the assessed value of the house?
$1 million x .25 = $250,000
