Stocks, Bonds, and Futures Why Buy Stock?

Gain a Profit Limit the Risk on their

investment Become a part of a

corporation Profit Potential

Capital gain- difference between higher selling price and lower original purchase

Capital Loss- sells a stock at a price lower that the purchase price

Limited Risk 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 Brokers and Analysts

Brokers- link buyers and sellers of stock

• Work for a firm that specialize in trading stocks and other securities

• Profit off commission or fee

Investment Banks • Buys and sells large

blocks of stock • Buy stock off of

corporations and sell it to the general public

Stock Exchanges 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

Over the Counter Market Stocks that are not

listed in the NYSE Smaller corporations

sell stock here

• 1st buyers or seller must place an order with broker

• 2nd broker arrange the purchase or sell by using NASDAQ

• Call other brokers that might have clients that want the same stock

Determinants of Stock Corporate Finances

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 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)

External Forces Government Statistics

on unemployment, inflation, interest rates, and the # of new houses being built/etc.

Types of Stock Shares

• # of Portions issued Dividends

• Profits from your investment

Common Stock Share Holders with a voice in how company is

run and a share in a potential dividends Preferred Stock

Guaranteed dividends with no voice in the running of company

Why buy Bonds? Yields

• have lower dividends than stock

• Less risk Corporate Bonds

Come in large units ($1,000.00)

Maturity period (long)/annual interest rate

Government Bonds US Treasury Department

issues Bond. Bills, and notes

Why buy futures? Futures

Type of investment Trade of various types

of products • Agricultural products

(corn, wheat, soybeans)• Industrial Products

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. How do an investor purchase stock? How do corporate finances, investor

expectations, and external forces influence stock prices?

How does the futures market offer risks to sellers as well as to investors?