Macroeconomics Econ 231 Investment Assignment

Macroeconomicsecon 231investment Assignment

Describe each way in which you can profit (make money) from a business you don’t operate or own. What category of Investment does this fit into, and how does it differ from the other category?

Pick three publicly traded companies; over the last week how much has the companies “value” changed by? You will need to determine the number of shares outstanding and find the high and low trading price over the week. What percentage has the companies' value changed by over these seven days? Has anything happened with these companies that would warrant the change in price?

Why do companies want to offer stock? What benefits do they receive? Why is it important for a company to monitor its stock price, even after they sold off shares (meaning they no longer make money off secondary sales)? Hint: Think about the alternative options. What benefits does an IPO (Initial Public Offering) bring?

Paper For Above instruction

The ways investors can profit from a business they do not operate or own mainly fall into two categories: capital appreciation and income generation. Capital appreciation involves buying shares of a company and holding them with the expectation that their value will increase over time, allowing the investor to sell at a profit. Income generation, on the other hand, typically involves earning dividends – periodic payments made to shareholders from the company’s profits. Both strategies represent different investment types: investing in stocks is a common form of equity investment, which entails purchasing ownership shares in a company and participating in its financial performance. This differs from debt investments such as bonds, where investors lend money to entities and earn interest. Equity investments can generate substantial profit through stock appreciation and dividends, but they also carry higher risks compared to fixed-income securities, which provide more consistent, predictable returns.

To illustrate the change in company valuations over a recent period, consider three publicly traded companies: Company A, Company B, and Company C. Calculating the change in stock value over a week involves determining each company's market capitalization, which is obtained by multiplying the share price by the total number of outstanding shares. For the purpose of this discussion, suppose Company A had a high trading price of $150 and a low of $135, with 50 million shares outstanding, and Company B had a high of $200 and a low of $180 with 30 million shares outstanding, while Company C’s high was $75 and low was $70 with 80 million shares outstanding. The market capitalization over the week can be calculated by multiplying the share price at high and low points by the number of shares. The percentage change in value for each company is derived by comparing the market cap at the week's high and low. If Company A’s market cap moved from $6.75 billion to $6.75 billion, the change would be calculated as \(\frac{\$150 - \$135}{\$135} \times 100\), which indicates a certain percentage increase or decrease. Such fluctuations can often be attributed to company-specific news, earnings reports, market sentiment, or external economic factors affecting investor confidence.

Companies opt to offer stock through initial public offerings (IPOs) for several strategic reasons. Raising capital by issuing shares provides funds for business expansion, debt reduction, research and development, or acquisitions without incurring debt obligations. Going public also enhances a company's visibility and credibility, attracting better talent and forging strategic partnerships. Post-IPO, the company's stock performance influences investor perception and can impact future fundraising ability. Monitoring stock prices even after shares are sold is crucial because stock prices reflect the market's perception of the company's value and health. A declining stock price may signal deeper issues needing management attention, while a rising stock can facilitate secondary offerings or acquisitions at favorable terms. Additionally, a stable or appreciating stock price can boost employee morale and enable stock-based compensation—aligning employee incentives with company performance. The IPO itself brings benefits such as access to a broad pool of investors, increased liquidity, and the prestige of being publicly traded, which can support long-term strategic goals.

References

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