Posted: June 15th, 2022

Principles of Financial Management

Principles of Financial Management

Purpose: To give students a better understanding of the U.S. stock market by participating in a stock market simulation exercise. Each student will start with a portfolio of $1,000,000 in cash and have the opportunity to invest this money in stocks, bonds, and mutual funds of companies traded on U.S. exchanges.

Guidelines: Must logon to StockTrak (a link will be emailed to you) and complete your first trade no later than October 1st. Must complete at least four trades by the end of the simulation. No single position can be greater than 25% of the portfolio balance. The simulation will start on September 17, 2018 and run until November 17, 2018. Each student will be given access to an account with $1,000,000 to manage. Bonus points will be given to the students who have the 1st, 2nd, or 3rd largest account balances at the end of the simulation.

Evaluation: The assignment is worth 200 points. At the end of the simulation period you must write a report on your performance during the simulation and a reflection section that describes how the experience affected your understanding of the stock market and your investing style. The report must cover what you did including all of the following:

1.) The ending account balance as of November 16, 2018.

2.) The rate of return for this account during this time period.

3.) How many trades were completed on the account?

4.) Describe your method for stock selection.

5.) Did you sell any shares? If so, how did you decide what stocks to sell?

6.) Compare your return with that of the Standard & Poor’s 500 (SPY) index and discuss why your performance was better or worse than the benchmark.

In addition your report should have a reflection section in which you discuss two of the following:

1.) How would you improve your results if you were to participate in another simulation?

2.) How has the simulation changed your knowledge of the stock market?

3.) Evaluate the risk you took in this portfolio. Do you feel it was higher or lower than the Standard & Poor’s 500 index? Why?

4.) What did you learn about yourself by taking part of this simulation?

5.) Only for those who completed 25 trades or more during the simulation: How do you think the frequent trading impacted your portfolio results? Did you ever regret a trade you made? If you did, please explain.

Evaluation Criteria: The report must be professional. Pretend that you were a money manager and you are reporting the results of the account performance to your client. Discuss how you invested the client’s money and the results that you achieved. In the reflection section, assume you are writing to a mentor describing what you learned from the experience and how the simulation changed your understanding of the stock markets and of your investing style. The paper must be at least 3 pages in length and no longer than 7 pages using a 12 point font and one inch margins, double spaced. Answers to the questions must be clear and well thought out. Everyone must visit the writing center at least once to have this paper reviewed prior to submission.

Griesdorn, BFIN 3321-03, BFIN 3321-05

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