Investing: Instruments, Pricing and Strategies

Define the stock market as a place where publicly held companies publish shares for investors to buy and sell, where price changes enable financial analysis.

Trace the history of stock exchanges from the London coffee house to today’s global markets, comparing NYSE’s auction method, Nasdaq’s dealer market, and the rise of Shanghai Stock Exchange.

We introduce market instruments for investing, divide assets into base assets (stocks, bonds, ETFs, currencies, commodities) and derivatives (futures, options, structured products), and promise to define them in detail.

Explore shares and bonds, including common, voting, and preferred shares, dividends, and how stock prices, IPOs, and nominal values shape returns and risk, with bond ratings and floating rates.

Calculate the total return of a stock investment by combining price change and dividends. Bob buys ten shares at $10, sells at $9.8, receives $10 dividends for an 8% return.

Explore a bond example: buy a $1,000 face value bond for $990, receive 3% semiannual coupons ($30) and $10 at expiration, for about a 7% return.

Analyze currency exchange markets for banks, companies, and investors to manage risks and protect savings from inflation with stable currencies. Explore commodities markets for wholesale goods like oil and wheat.

Explore how etfs bundle assets like stocks and bonds into a single tradable fund. Invest by sector or market, including emerging markets, to reflect index returns and hedge currency risk.

Compute the future value using simple or compound interest and assess its present value with a discount factor, accounting for inflation and market uncertainty.

Calculate the present value of multiple cash flows by discounting each payment at 6% and summing them, then determine the future value of varied cash flows at year four.

Explore annuities and perpetuities, compute present and future values with annuity factors, and compare lump-sum versus annuity options using discount rates.

Define bonds and key terms such as face value, maturity, and coupons, then explain pricing by discounting coupons and face value to assess profitability.

Calculate the present value of a bond by discounting annual coupons and the face value at a 3% yield to maturity, illustrating profit and yield concepts.

The bond pays semi-annual coupons of 4.25 euros from June 2009 to December 2012, with a 100 euro face value; using a present value annuity factor, earlier payments yield profits.

Calculate the present value of a bond using yield to maturity. Relate credit ratings from S&P, Moody's, and Fitch to coupon rates and bond risk; higher yield lowers present value.

Explore the rate of return for bonds, defined as total income per period per dollar invested, including coupon income and price change. A practical example shows a return of 45.5%.

Understand duration as the average time to a bond's cash payments and use present value to compute it for a €1,000 bond with €100 coupons at 5% yield, 2.75 years.

Understand how duration and modified duration measure a bond's price response to yield changes. The modified duration equals duration divided by one plus yield, illustrated with a €1,000 bond example.

Learn stock price formation and valuation, including dividends and capital gains, with real-life examples like Apple and the S&P 500 to illustrate long-term wealth growth and inflation beating.

Use discounting techniques to calculate real investment returns after inflation. Learn stock price basics, including open, close, high, low, volume, and candlestick colors, and how volume signals trader activity.

Explore estimating return on volatility by adjusting historical performance, using Apple shares 2005–2023, applying a logarithm to prices, and computing annual return with closing prices, versus the S&P 500.

Explore how volatility measures risk, compare asset price movements like Apple and the S&P 500, and examine financial bubbles from tulips to crypto ETFs and investor behavior.

Explore how a company’s financial report reveals assets, liabilities, and equity; revenue, costs, and margins; and cash flows across operating, financing, and investing activities.

Explore the risk and return connection through the capital asset pricing model, risk free and risky assets, beta, and the efficient frontier to understand returns versus risk.

Explore the security market line and Sharpe ratio to analyze risk and return, using the risk-free rate, market return, and portfolio comparisons across periods.

Apply CAPM to compare asset returns using the SML. Use the formula R = RF + beta times (RM minus RF) to plot investments.

Compute expected stock returns using the capital asset pricing model with beta and the risk premium. Analyze Caterpillar, Dow Chemical, and Treasury bill examples to verify calculations.

Learn how market multipliers assess stock attractiveness and distinguish undervalued from overvalued companies, using price to sales and industry comparisons.

Explore price to earnings and price to book value as market multipliers, learn how to calculate them from earnings, book value per share, and compare banks and high tech companies.

Evaluate price to sales and price to cash flow from operating activities to value firms by revenue and operating cash flow. Compare to industry medians to gauge undervaluation or overvaluation.

Learn how enterprise value refines market capitalization by including debt and cash, and compare firms with EV to sales and EV to EBITDA.

Explore futures, a derivative to buy or sell an asset at a pre‑agreed price, using leverage and margin for hedging through deliverable or cash‑settled contracts.

Learn how options work alongside futures for hedging risks, including call and put rights to buy or sell assets at a strike price before expiration, plus intrinsic value, and premium.

Explore in-the-money, at-the-money, and out-of-the-money concepts and learn key option strategies such as married put, bull call spread, and long straddle.

Define a portfolio as a weighted mix of assets that matches your risk profile, aiming for a balanced allocation and stable income.

Define investment goals and time horizon, then assess risk and return using portfolio concepts. Learn how assets, weights, variance, standard deviation, and correlation shape risk and potential returns.

Calculate the total return and risk for two portfolios, A and B, using two assets with weights and correlations; A yields 12.5% and 7.75% risk, B yields 14% and 10%.