Investing In StocksInvesting In Stocks

Chapter 31Chapter 31

Today’s ScheduleToday’s Schedule

Tuesday’s Quiz ReviewTuesday’s Quiz Review Assignment of HomeworkAssignment of Homework Chapter 31Chapter 31 QuizQuiz

QuizQuiz

Name two of the four types of savings Name two of the four types of savings account discussed in this chapter account discussed in this chapter Traditional, Certificate of Deposit (CD), Money Traditional, Certificate of Deposit (CD), Money

Market Fund, Money Market Deposit AccountMarket Fund, Money Market Deposit Account What does FDIC stand for? What does FDIC stand for?

Federal Deposit Insurance CorporationFederal Deposit Insurance Corporation Inflation RiskInflation Risk is the risk that the rate of is the risk that the rate of

inflation will increase more than the rate of inflation will increase more than the rate of interest on savingsinterest on savings

Extra Credit – How much does the Extra Credit – How much does the handbook cost? $6handbook cost? $6

HomeworkHomework

Read Chapter 31 & Do Key Word Read Chapter 31 & Do Key Word DefinitionsDefinitions

Event Management (5 points)Event Management (5 points) Project how many will be registered at Project how many will be registered at

particular points leading up to the event particular points leading up to the event datedate

Offer contingency (back-up) plans for all Offer contingency (back-up) plans for all areas where something can go wrongareas where something can go wrong

Recruit and manage event volunteersRecruit and manage event volunteers Due 12/1/06Due 12/1/06

Chapter 31 Learning Chapter 31 Learning ObjectivesObjectives

Define stockDefine stock Explain how stock is bought and Explain how stock is bought and

soldsold Identify the indexes that track Identify the indexes that track

stock prices over the long runstock prices over the long run

Why It’s ImportantWhy It’s Important

Making good investment Making good investment decisions helps you reach your decisions helps you reach your financial goalsfinancial goals

How is that an accurate How is that an accurate statement?statement?

Investing In StocksInvesting In Stocks

Investing – Putting your money Investing – Putting your money to use in order to make money to use in order to make money on iton it

Stock – Share of ownership in a Stock – Share of ownership in a businessbusiness Businesses sell as a way of Businesses sell as a way of

enlarging a companyenlarging a company

Return on StocksReturn on Stocks

YieldYield Return on an InvestmentReturn on an Investment

Return depends on type of Return depends on type of return and rate of returnreturn and rate of return

Types of ReturnTypes of Return

Two ways to make a return on Two ways to make a return on stocksstocks Payment of DividendsPayment of Dividends Sale of StockSale of Stock

Government will tax any Government will tax any earnings you make on the twoearnings you make on the two

Types of Return:Types of Return:Payment of DividendsPayment of Dividends

DividendDividend A share of profitsA share of profits

Dividends are paid when a Dividends are paid when a corporation is extremely corporation is extremely profitableprofitable

Usually paid quarterlyUsually paid quarterly

Types of Return:Types of Return:Selling StockSelling Stock To make a profit:To make a profit:

Must sell for more than paid Must sell for more than paid Capital GainCapital Gain

Selling stock for more than you Selling stock for more than you paidpaid

Capital LossCapital Loss Selling stock for less than you Selling stock for less than you

paidpaid Why would one ever do this?Why would one ever do this?

Rate of ReturnRate of Return

Always expressed as a percent of Always expressed as a percent of the original investmentthe original investment

Figured on an annual basisFigured on an annual basis Example:Example:

Single share of stockSingle share of stock Value increases from $50 - $55 over a Value increases from $50 - $55 over a

yearyear Share pays a $5 dividend that yearShare pays a $5 dividend that year $10 return on a $50 investment $10 return on a $50 investment ($10/$50) = .20($10/$50) = .20 20% return on investment20% return on investment

Types of StockTypes of Stock

Two types:Two types: Common StockCommon Stock Preferred StockPreferred Stock

Common StockCommon Stock

Primary form of ownership in a Primary form of ownership in a corporationcorporation

Corporations must issue this type Corporations must issue this type (some will only issue this type)(some will only issue this type)

For each share you own, you get a For each share you own, you get a vote in running the corp.vote in running the corp.

Board of Directors runs the company Board of Directors runs the company in the interest of the stockholdersin the interest of the stockholders

Preferred StockPreferred Stock

Gives shareholders certain Gives shareholders certain privileges that common privileges that common stockholders do not receivestockholders do not receive

Dividends usually paid to Dividends usually paid to preferred stock first – if paid at preferred stock first – if paid at allall

If a company fails, preferred If a company fails, preferred stockholders get a share of the stockholders get a share of the assets before the commoners assets before the commoners

StockbrokersStockbrokers

BrokerBroker Person who acts as a go-between Person who acts as a go-between

for buyers and sellersfor buyers and sellers Process the purchase and sale Process the purchase and sale

of stocksof stocks Charge either a percent of the Charge either a percent of the

value of the stock or a set value of the stock or a set amount for each transactionamount for each transaction

Stock ExchangesStock Exchanges

Trading market where stocks are bought Trading market where stocks are bought and soldand sold

Central location for traders to buy and sell Central location for traders to buy and sell stockstock

Only stocks listed on an exchange can be Only stocks listed on an exchange can be bought and soldbought and sold

There are rules provided by exchangesThere are rules provided by exchanges Usually, Company must be in good financial Usually, Company must be in good financial

standing to be tradedstanding to be traded Best-known:Best-known:

New York (NYSE)New York (NYSE) Midwest Stock Exchange (Chicago)Midwest Stock Exchange (Chicago) London Stock ExchangeLondon Stock Exchange Tokyo ExchangeTokyo Exchange

Over-the-Counter MarketsOver-the-Counter Markets

Definition – all investments bought Definition – all investments bought and soldand sold

What about stocks not listed on What about stocks not listed on major exchanges?major exchanges? Can be bought and sold through the Can be bought and sold through the

National Association of Securities National Association of Securities Dealers Automated Quotations Dealers Automated Quotations (NASDAQ) market(NASDAQ) market

Stocks traded are done so through a Stocks traded are done so through a created market made by brokerage created market made by brokerage houseshouses

QuizQuiz

What are the two factors on which a What are the two factors on which a return on stock depends? (4 points)return on stock depends? (4 points)

What are the two types of stock? (4 What are the two types of stock? (4 points)points)

There are two ways to make a return There are two ways to make a return on a stock as discussed in the on a stock as discussed in the chapter. Name one. (2 point)chapter. Name one. (2 point)

Extra Credit – By what time in the Extra Credit – By what time in the morning should a student’s morning should a student’s parent/guardian report an absence to parent/guardian report an absence to the school office?the school office?

Group WorkGroup Work

Event Management (5 points)Event Management (5 points) Project how many will be Project how many will be

registered at particular points registered at particular points leading up to the event dateleading up to the event date

Offer contingency (back-up) plans Offer contingency (back-up) plans for all areas where something can for all areas where something can go wronggo wrong

Recruit and manage event Recruit and manage event volunteersvolunteers

Due 12/1/06Due 12/1/06