LEVEL: Introductory

LENGTH: 45 minutes

Stocks
Lesson Overview
In this lesson, students explore the concept of stocks more deeply. They
will understand the dividend rights of stockholders and also have a basic
understanding of stock-related concepts, such as Initial Public Offering (IPO) and
blue chip stock. Students discuss meanings of key terms and review what they
have learned about simple and compound interest rates. In small groups, students
compute different yields from savings accounts using simple and compounded
interest and compare those to expected yields from owning stocks that pay
dividends. Students then calculate the returns on investment. Students will learn
how to buy stocks through practice, placing a trade on
WInS (the competition simulator). INSIDE THE COMPETITION
1. Understand what it means
experience is similar to buying stocks from a to own stock.
brokerage account. 2. Learn order types and
terms.

Background Knowledge for Teachers MATERIALS

A stock is a share of ownership in a company. A stock usually pays
Provided
dividends, which are variable payments from the company to its 1. Student Worksheet (page 6)
owners. Stocks are also known as “shares” or “equity”. For investors, 2. Worksheet answer key
stocks are one of the most common investment choices. Stocks (in a separate document)
3. Order Types Summary
often come with a higher risk but also a higher return. Stocks have (page 7)
unlimited return and infinite maturity compared to bonds. For 4. Order Terms Summary
corporations, issuing stocks is one of the three main ways they (page 8)
finance themselves (the other two methods are issuing bonds or Not Provided
obtaining bank loans). Investors may often refer to stocks and bonds Projector, screen, computer with
sound system and internet acces
in the same breath. While this competition does not allow for bond
investment, it is important to note the definition. Bond investment
may be smart to generate short-term income, but it does not have STUDENT VOICES
the same long-term appreciation potential as investing in stocks. Introduce a peer perspective on
buying stock by having students
read How to Own a Piece of
Learning Objectives Your Favorite Brand, a student
essay by Ari B. “From Adidas
At the end of this lesson, students will be able to: apparel to the latest iPhone,
teens love to associate with the
■ Define more stock-related concepts such as IPO, blue chip stock, top brands…imagine profiting
dividend and Return on Investment (ROI) from these sales?”

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 Stocks
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■ Calculate and compare yields from savings accounts using simple interest, compound interest, and
stocks that pay dividends
■ Know how to buy stocks and place trades on WInS (Wharton Investment Simulator)

Glossary Terms
Watch how Wharton faculty define and use the glossary terms presented in this lesson:
■ Blue Chip Stock ■ Shareholder
■ Dividend ■ Speculation
■ Initial Public Offering ■ Stock
■ Return on Investment or ROI ■ Stock Market

ADDITIONAL GLOSSARY TERMS DEFINED IN THE LESSON PLAN:

■ Common Stock: Owners of common stock have voting rights at shareholders’ meetings.

■ Preferred Stock: Owners of preferred stock receive dividends before owners of common stocks, but
do not have voting rights.

Lesson Plan
SEQUENCE/TIME DETAILS

WHAT DOES OWNING A STOCK MEAN?

1. Ask students to reflect on the “Introduction to Investing 1.1-What Is an Investment”
Engage lesson, then give the definition of stocks.
/5 mins 2. Ask students: Why do companies issue stocks?
Answer: A company issues stock to sell pieces of ownership of its business in ex-
change for money it can use to fund business operations.
3. If you own a share of a company, you own a portion of the company no matter
how small that portion is. This makes you a “Shareholder” or “Stockholder” of that
company. Stockholders have two main rights: voting and dividends. We will mainly
discuss dividend rights today, but ask your students these questions and see how
they respond:
a. As a stockholder, can you boss the company’s employees around and vote on
important decisions like buying another company? (Answer: No. There is a
premium for voting rights, meaning you must have a minimum percentage of
ownership in order to vote on important decisions. For example, it is 5% on
average in the U.S. This can be much higher in other countries which have weaker
protection for shareholders, e.g., 50% in Italy)
b. As a stockholder of Lululemon, do you get discounts on the company’s products?
(Answer: No. Owning shares of a company does not entitle you to discounts on
its sold goods or services. Dig deeper: Do you even want a discount? Hint: Think
like an investor, not like a shopper!)

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OTHER IMPORTANT DEFINITIONS RELATED TO STOCKS
1. Let’s continue the discussion of stockholders’ rights. Play the glossary video for
Dividend.
Definitions
/15 mins Question: Are companies obligated to pay dividends?
Answer: No. Some companies choose to pay dividends as an incentive to keep inves-
tors.
Question: If companies do not pay dividends, what do they do with their corporate
earnings?
Answer: Pay back loans or reinvest in the company.
2. What are the main types of stock?
There are two main types: common stock and preferred stock. The difference
between these types of stock are:
a. Owners of common stock have voting rights at shareholders’ meetings on big
decisions for the company, no matter how small that voting power is in related to
how many shares of common stocks you own. Owners of preferred stock do not
have voting rights.
b. Owners of preferred stock receive dividends before owners of common stocks.
Also, when a company goes out of business and has to sell all of the things it
owns, owners of preferred stocks will get their money back first.
So, it sounds like preferred stock is a better deal for most ordinary shareholders
given what you receive in return. What truly matters is that a piece of ownership in
a company gives you access to its profit, and the ability to get your money back first
when things go south. However, not many companies issue preferred stock; most of
the stock you have access to in the market is common stock.
3. Where is stock bought and sold?
In the Stock Market. A stock market is where stocks -- shares of companies -- are
bought and sold. In the competition’s approved stock list, you will notice every stock
has a listed exchange. An exchange is a secondary stock market where existing stock
owners can transact with potential buyers. Why secondary? Because buying stocks
directly from companies is pretty rare for ordinary investors. So, the stocks that
ordinary investors really buy are from other investors, not from the companies that
issued the stocks. When you sell your existing shares, you sell to other investors as
well, not to the companies that issued the stocks.
4. Issuing Stock
Play the glossary video for Initial Public Offering.
You might have heard something like “this company is a public company” or “That
company just went public.” What is the antonym of public? Private. When a compa-
ny issues stock to the general public, that company is no longer privately owned. Its
stocks can be traded publicly. Everyone who owns its shares has a piece of ownership
in that company. Also, that company must issue public reports about its finances,
operations and deals and can no longer keep company information private.
Question: Why does a company have an IPO?
Answer:
a. Companies need to raise money for other operations and expansion. Issuing
stocks is one of three main ways. The other two are issuing bonds and obtaining
bank loans.
CONTINUED >
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b. -
ists or other investors to “cash-out” (get a return on the company in which they
invested, often through early stages of growth). Venture capitalists are usually
aggressive in pushing for an IPO, since that is how they traditionally earn a re-
turn on their investment.
/15 mins
3. Blue Chip Stock

Walmart, Boeing, and Coca-Cola.

Question:Are blue-chip stocks the safest choices?
Answer:Not necessarily. In 2008, General Motors and Lehman Brothers went bank-
rupt.
4. Return on Investment
ROI = Current Value of Investment – Cost of Investment
Cost of Investment

from various investment choices. Next, we will compare the ROI of stocks with that
of a bank savings account. As you learn more about investing, you can compare ROI
across industries and companies, as well.

CALCULATE AND COMPARE ROI AMONG INVESTMENTS

Practice interest and compound interest. Write down these three formulas on a white board. If
/10 mins students did not learn simple interest or compound interest before, check out the “Ex-
tend” section below for those lesson plans.
1. I = P X r X t
I is the interest earned or owed in dollars, P is the principal amount deposited, lent, or
borrowed, r is the interest rate (the percent) in decimal form, and t is the time in years
that the money is in the account, lent, or that the borrower takes to pay back the loan
2. )nt
P is the principal amount, or the original amount of money before any growth occurs, r

of times the interest is compounded per year, t is the number of years, and A is the new
amount.
ROI = Current Value of Investment – Cost of Investment
Cost of Investment
-
utes to work on the worksheet (page 6). Ask one group to answer one question. You can
find the answer key here.

©2020 The Wharton School, The University of Pennsylvania

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TRADING ON WInS
So, how do you buy and sell stocks? You need a stock brokerage, which is basically a
marketplace for stocks and other investment products. Buyers and sellers all come to this
Trading
marketplace so transactions can happen. These brokerages often charge a fee for their
Practice
service.
/13 mins
In this competition, the WInS trading simulator (provided by StockTrak) serves as your
stock brokerage. For those who do not participate in the competition, you can still use
WInS to show students the process. If students want to buy and sell stocks in real life,
they need to open up a convenient online brokerage account. Some low-cost broker-ages
are Robinhood, Ameritrade, E-Trade, Merrill Edge.
Next ,we will learn the different types of buy/sell orders you can place. You can use the
Order Type Summary on page 7.
The teacher can log in to their WInS account and go to the “Make a Trade” section while
explaining each order type, so students will have a visual of that trading interface.
Finally, there are some Order Terms. Refer to page 8 for details.

1. Stocks often come with a higher risk but also a higher return.
2. Stocks have unlimited return and infinite maturity compared to bonds.
Takeaways 3. For companies, issuing stocks is one of the three main ways they finance themselves.
/2 mins 4. Common shareholders have voting rights and rights to receive dividend.

Extend
1. Lesson Plan: Earning Simple Interest (Link)
2. Lesson Plan: The Power of Compound Interest (Link)
3. Article: Talking Lyft, Uber and the Flood of New Tech IPOs (Link)
4. Some activities beyond the classroom:
• Encourage students to ask their parents/relatives/adults around them if they hold any stock invest-
ments. If so, what kind of stocks and how they perform.
• Have students select a stock and note its performance for the past week. Ask them to discuss the
gener-al trend of the markets for that particular week.

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Student Worksheet
Name:_____________________________________

You have $5,000 that you want to invest and don’t need to use for at least 10 years. In the meantime, you
think it would be nice to use the proceeds from investing your money (either interest or dividends paid)
as extra spending money. Currently, your bank is offering a quarterly compounding interest rate of 0.5%.
Also, shares in The Coca-Cola Corporation (COKE) are selling at $50 per share and pay quarterly dividends
of $0.25. Assuming that the stock price of Coke will not change in the next 10 years, will you make more
on your investment in the savings account from interest or by investing in Coke and receiving dividends?
What is the difference?
a. How much money will you make in a savings account after 10 years (on top of the principal investment)?

b. How many shares of Coke can you buy with $5,000?

c. How much will you make per share

i. Each quarter?

ii. Each year?

iii. After 10 years?

d. Which investment produces a greater yield?

e. By how much?

f. Calculate the ROI.

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Order Type Summary
Order Type Definition Example
Market Order An order to buy or sell immedi- If a security currently trades at $15/
ately at the current market price. share, your placed market order will
be executed at $15/share.
Limit Buy An order to buy a security at or If a security currently trades at $16
Limit Order below a specific price. and you set a limit buy at $15, the
(To maximize order will only be executed when the
profit) security price drops to $15.
Limit Sell An order to sell a security at or If a security currently trades at $16
above a specific price. and you set a limit sell at $18, the
order will only be executed when the
security price rises to $18.
Stop Buy An order to buy a security at or If a security currently trades at $16
Stop Order above a specific price. (The oppo- and you set a stop buy at $17, the
(To minimize loss) site of limit buy order) order will only be executed when the
security price rises to $17.
Stop Sell An order to sell a security at or If a security currently trades at $16
below a specific price. (The oppo- and you set a limit sell at $14, the
site of limit sell order) order will only be executed when the
security price drops to $14.
Trailing Stop Order A stop order that can be set as If a security currently trades at $20
(To protect gains) a percentage or dollar amount and you set a trailing stop order of
away from a security’s current 10%, the order will be executed when
market price. the security price drops to $18 (10%
drop from $20);
If the security price rises to $40, your
new trailing order execution price
will be adjusted to $36 (10% drop
from $40)

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Order Terms Summary
Order Terms Definition Example
Good Till Day An order that remains active until the end of the If a security currently trades at $16 and
trading day. you set a Good Till Day buy order at
$15, your order will be cancelled at the
end of the trading day if the security
price never hits $15 during that trad-
ing day.
Good Till Can- An order that remains active until the investor
celled (GTC) manually cancels it. Most brokers set GTC orders
to expire (meaning the order will automatically be
canceled) 30 to 90 days after investors place them.
Good Till Date An order that remains active until a specific date If a security currently trades at $16
that the investor sets. on January 1, and you set a Good Till
Date buy order at $15 by January 15,
your order will be cancelled on January
15 if the security price never hits $15
between January 1 and January 15.

©2020 The Wharton School, The University of Pennsylvania