Stocks Bonds and Futures n Why Buy Stock

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Stocks, Bonds, and Futures n Why Buy Stock? n n Gain a Profit Limit the Risk on their investment Become a part of a corporation Profit Potential n n Capital gain- difference between higher selling price and lower original purchase Capital Loss- sells a stock at a price lower that the purchase price n Limited Risk n n In Corp. stockholders enjoy limited liability Ownership • Investors have some ownership in Corp. and can vote to elect the board of directors • Stock Split. Overhead

How stocks are traded n Brokers and Analysts n n Brokers- link buyers and sellers of stock Stock Exchanges n • Work for a firm that specialize in trading stocks and other securities • Profit off commission or fee n Investment Banks • Buys and sells large blocks of stock • Buy stock off of corporations and sell it to the general public NYSE-(1792) largest stock exchange in the US • Before firms this is were stock was bought and sold • Firm buys a “seat” @ NYSE in order to buy or sell stock n Over the Counter Market n n Stocks that are not listed in the NYSE Smaller corporations sell stock here

• 1 st buyers or seller must place an order with broker • 2 nd broker arrange the purchase or sell by using NASDAQ • Call other brokers that might have clients that want the same stock

Determinants of Stock n Corporate Finances n n Measured in profits or losses Quarterly and annual earning reports are read carefully by investors • High quality products and has a good long term prospects= buy

Determinants of Stock n Investor expectations • Watching fluctuation in stock index • Bull market- Dow steadily rises over a period of time (buy) • Bear market- when the Dow average falls for a period of time (sell) n External Forces n Government Statistics on unemployment, inflation, interest rates, and the # of new houses being built/etc.

Types of Stock n Shares • # of Portions issued n Dividends • Profits from your investment n Common Stock n n Share Holders with a voice in how company is run and a share in a potential dividends Preferred Stock n Guaranteed dividends with no voice in the running of company

Why buy Bonds? n Yields • have lower dividends than stock • Less risk n Corporate Bonds n n n Come in large units ($1, 000. 00) Maturity period (long)/annual interest rate Government Bonds n n US Treasury Department issues Bond. Bills, and notes

Why buy futures? n Futures n n Type of investment Trade of various types of products • Agricultural products (corn, wheat, soybeans) • Industrial Products n Trader accepts investors money in exchange for a promise to deliver commodity to investor at a later date • Buy now at a lower price save later

Review Questions List the main reasons people choose to purchase stock. n How do an investor purchase stock? n How do corporate finances, investor expectations, and external forces influence stock prices? n How does the futures market offer risks to sellers as well as to investors? n

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