Post on 19-Jan-2016
description
A Study of
Risk&
Reward
Why do companies issue stock?Why do companies issue stock?
• Corporations raise money by selling stockCorporations raise money by selling stock– By selling By selling SHARES, SHARES, corporations can raise corporations can raise
money to:money to:– StartStart– RunRun– Expand their businessExpand their business
STOCK represents ownershipSTOCK represents ownership
There are TWO ways for shareholders to make a profit!
• DIVIDENDSDIVIDENDS– A portion of the corporation’s profits are A portion of the corporation’s profits are
paid to shareholderspaid to shareholders– Higher Profits = Higher Dividends per shareHigher Profits = Higher Dividends per share
• CAPITAL GAINSCAPITAL GAINS– The The differencedifference in the in the purchasing purchasing
price & selling priceprice & selling price– Selling @ a HIGHER price = gainSelling @ a HIGHER price = gain– Selling @ a LOWER price = lossSelling @ a LOWER price = loss
STOCK SPLITTINGSTOCK SPLITTING• A third way investors can increase
the return on their shares is stock splits.– A company doubles the number of
shares you hold, but cuts their price in half.
Stock prices reflect the value of a corporation to buyers. But if prices become too high, buyers
won’t want to buy the company’s stock.
HOW DO I PURCHASE STOCK?• Contact a STOCKBROKERSTOCKBROKER
• This is a person that links potential sellers & This is a person that links potential sellers & buyers.buyers.
• Stockbrokers charge fees for conducting the sale. Stockbrokers charge fees for conducting the sale.
TYPES OF STOCKTYPES OF STOCK
• Income stockIncome stock– Pays dividends. Pays dividends. – These are usually large well-established These are usually large well-established
firms.firms.
• Growth stock Growth stock – Pays few dividends, profits are reinvested in Pays few dividends, profits are reinvested in
the company. the company. – These are new start-up companiesThese are new start-up companies
STOCK EXCHANGESSTOCK EXCHANGES MARKETS FOR BUYING AND SELLING STOCK
New York Stock Exchange (NYSE)•The oldest, largest and most prestigious exchange in the US•A company must have 300,000 shares of stock that are owned by at least 1,500 people•The largest companies are known as BLUE CHIP stock
STOCK EXCHANGESSTOCK EXCHANGES
Over-the-Counter (OTC) Over-the-Counter (OTC) MarketsMarkets
•Stocks are bought and sold over Stocks are bought and sold over computer terminals, not on the computer terminals, not on the floor of an exchangefloor of an exchange
•Stocks are listed on NASDAQ (the Stocks are listed on NASDAQ (the 22ndnd largest exchange in the US) largest exchange in the US)
MEASURING STOCK PERFORMANCE
• BULL MARKETBULL MARKET– Stock market is rising steadily over a period of Stock market is rising steadily over a period of
time.time.
• BEAR MARKETBEAR MARKET– Stock market is steadily falling over a period of Stock market is steadily falling over a period of
time.time.
MEASURING STOCK MEASURING STOCK PERFORMANCEPERFORMANCE
•Dow-Jones Industrial Average (DIJA)Dow-Jones Industrial Average (DIJA)•Publishes a daily average of the closing prices of 30 stocks listed on the NYSE
Standard and Poor’s 500Standard and Poor’s 500Uses the closing prices of 500 stocks listed on NYSE and NASDAQ
DOW Jones Industrial AverageDOW Jones Industrial Average