Investing Economics Chapter 11 Section 1...BULL VS. BEAR MARKET Bull Market: prices are rising Bear...
Transcript of Investing Economics Chapter 11 Section 1...BULL VS. BEAR MARKET Bull Market: prices are rising Bear...
InvestingEconomics Chapter 11 Section 1
SPEND IT!
INVEST IT!
SAVE IT!
INVESTING:REDIRECTING YOUR RESOURCES FOR
PROFIT AND FUTURE BENEFIT
INVESTING CONTRIBUTES TO THE FREE ENTERPRISE SYSTEM
Profit Motive:PRIVATECITIZENSINVEST IN
ORDERTO MAKE A
PROFIT
HOW DOES INVESTING WORK?
THE COMPANY TAKES
YOUR MONEYAND BUILDS UPTHEIR PROFITS
THAT COMPANY
PAYSYOU BACK IN THE FORM
OF INTEREST AND/OR
DIVIDENDSOR CAPITAL
GAINS
YOU PUT YOUR MONEYINTO A
COMPANY’SSTOCK OR
BONDS
WHAT DOES INVESTMENT REQUIRE?
• Financial System
• Assets
• Financial Intermediary
• Knowledge of Risks
FINANCIAL SYSTEM
MUST BE:• STABLE
• REGULATED
• FREELY ACCESSIBLE BY INVESTORS AND INVESTEES
ASSETS
MONEY
(OR THINGS OF WORTH)
TO INVEST
FINANCIAL INTERMEDIARIESHELP YOU INVEST
PROVIDE:PROSPECTUS
PORTFOLIOS
DIVERSIFICATION
LIQUIDITY
Bonds and Other Financial AssetsEconomics Chapter 11 Section 2
BONDS: LOANS OR IOUs THAT REPRESENT WHAT A
CORPORATION OR GOVERNMENT OWES YOU AT MATURITY
THREE BASIC COMPONENTS OF BONDS:
• COUPON RATE: interest rate paid to you
• MATURITY: the date that you can cash it in
• PAR VALUE: the principal (starting) value
SAVINGS:
low denominations
issued by the
government
TREASURY BONDS,
BILLS, NOTES:
issued by the US Treasury
Department, low risk
MUNICIPAL:
sold by state and
local government
CORPORATE:
sold by corporations
JUNK:
low rated, risky bond
that could have higher
yields
See p. 279 for bond rating systems
CAPITAL MARKETS:investment for more
than one year
MONEY MARKETS:investment is less than
one year
PRIMARY MARKETS:only the original
holder can redeem it
SECONDARY MARKETS:investment can be resold
repeatedly
The Stock MarketEconomics Chapter 11 Section 3
STOCKS
EQUITIES OR SHARES:
a corporation allows you to
own a “piece” of their company in
exchange for either “dividends”
or “capital gains”
HOW DO YOU MAKE MONEY IN THE STOCK MARKET?
Step # 1: Research the corporation
Step # 2: Find a financial intermediary
Step # 3: Buy the stock (number of shares)
Step # 4: Monitor the progress
Step # 5: Sell it to earn “capital gains” or to
cut “capital losses”
Step # 6: Collect “dividends”
WHERE CAN YOU RESEARCH?
• FINANCIAL NEWS
• CORPORATE WEBSITES
• FINANCIAL INTERMEDIARIES
ALL STOCKS ARE NOT THE SAME
TYPES OF STOCK
income
pays dividends
regularly
growth
profits are
reinvested
preferred:
no vote for
holders
common
all holders
get a vote
WHERE DOES THIS HAPPEN?
NYSE - an actual place in NYC
- largest stock exchange
- blue chip stocksNASDAQ - mostly electronic
- OTC stocks
Brokers and Traders
DOW JONES INDUSTRIAL AVERAGE
SHOWS THE HEALTH OF THETOP 30 CORPORATIONS IN THESTOCK MARKET
S & P 500:TOP 500 CORPORATIONS
BULL VS. BEAR MARKET
Bull Market:
prices are rising
Bear Market:
prices are falling
Which is scarier?
OPTIONS & FUTURES
Investing based on prices in the future
and reserving the option to buy or sell in the
future.