Stocks, Bonds and Mutual Funds

Write down these questions on your notes (leave answer space)

What are Stocks? How does the Stock Market Work? Why Do People Buy Stock? Where are stocks bought & sold? How to buy & sell stocks? What is the difference between a stock

and a bond?

Student Objectives

Students will understand the cost and benefits of investing in the stock market.

Students will understand the cost and benefits of investing in mutual funds.

Essential Learning #2: What role do incentives, benefits, costs and prices play in a market economy?

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State Standards

1 Students analyze the elements of America's market economy in a global setting

Describe the functions of the financial markets.

3 Asset Classes

Stocks Bonds Mutual Funds

What are Stocks?

Stocks •A stock is a claim on the assets of a corporation that gives the purchaser a share of the corporation!

Now it is time to watch a video clip on Stocks!!!

http://www.youtube.com/watch?v=GnJCOof2HJk

How does the Stock Market Work?

NeedMONEY

• If a company wants to raise money it has 3 sources:1. Borrow from a bank2. Issue Bonds3. Sell or Issue stock in the

company

How does the Stock Market Work?

IPO • An Initial Public Offering (IPO) is a company’s first offering of stock to the public

How does the Stock Market Work?

Banks • An investment bank acts as an intermediary between the company that issues the stock & the public

Why Do People Buy Stock?

$$$$ • Millions of people around the world buy stock every day

• Some people buy stocks for the dividends• Payments to stockholders based

on a company’s profits• People buy stocks for the

expected gain in price (profit)

Where are stocks bought & sold?

Venues •The New York Stock Exchange (NYSE)

•Other Stock Exchanges•American Stock Exchange (AMEX)•National Association of Securities Dealers Automated Quotations (NASDAQ)•Foreign Exchanges & markets

•Stock brokers over the phone, in person, or online

How to buy & sell stocks?

Buying Stocks

•You can buy & sell through brokerage firms or online•An account can be opened with as little as $1000•A full service broker will give you recommendations but will also charge larger commissions•A discount broker or online broker will not give advice & charge smaller fees

How do you decide which stocks to buy?

Strategies for

Buying Stocks

•Some buy shares of companies they like—Coca Cola, Disney, Microsoft•Mutual Funds—a collection of stocks managed by a fund manager

•Several hundred people own shares in the mutual fund•The fund manager controls the selling of the stocks to maximize overall returns

•Using a stock index (a portfolio of stocks) which represents a particular portion of the market

•DJIA—Dow Jones—industrial stocks•NASDAQ—Technology Stocks

     

                    

The Dow Jones Industrial Average (DJIA)

DOW •The Dow Jones is the most popular cited indicator of day-to-day stock market activity•It is a weighted average of 30 widely traded stocks (that do change from time to time) on the NYSE•Charles Dow created it to tell people what was happening w/the market

1. 3M Company (MMM)

2. Alcoa Inc. (AA)

3. Altria Group, Inc. (MO)

4. American Express Co. (AXP)

5. American Int'l. Group (AIG)

6. AT&T Inc (T)

7. Boeing Co. (BA)

8. Caterpillar, Inc. (CAT)

9. Citigroup Inc. (C)

10.Coca-Cola Co. (KO)

11.DuPont deNemours (DD)

12.Exxon Mobil Corp. (XOM)

13.General Electric Co. (GE)

14.General Motors (GM)

15.Hewlett-Packard Co. (HPQ)

16.Home Depot, Inc. (HD)

17.Honeywell Int'l. Inc. (HON)

18.Intel Corp. (INTC)

19.International Bus. Mach. (IBM)

20.J.P. Morgan Chase & Co. (JPM)

21.Johnson & Johnson (JNJ)

22.McDonalds Corp. (MCD)

23.Merck & Co. Inc. (MRK)

24.Microsoft Corp. (MSFT)

25.Pfizer Inc. (PFE)

26.Procter & Gamble Co. (PG)

27.United Technologies Corp. (UTX)

28.Verizon Communications Inc. (VZ)

29.Wal-Mart Stores, Inc. (WMT)

30.Walt Disney Co. (DIS)

Symbol Index Name Last Change Change % Quote Date

COMP Nasdaq Composite Index 2,651.66 +70.00 +2.71% 9/18/2007 5:17:00 PM

DJIA Dow Jones Industrial Average 13,739.39 +335.97 +2.51% 9/18/2007 4:06:00 PM

DJTA Dow Jones Transportation Average 4,932.86 +186.23 +3.92% 9/18/2007 4:04:00 PM

DJUA Dow Jones Utilities Average 504.87 +9.94 +2.01% 9/18/2007 4:04:00 PM

IXCO Nasdaq Computer Index 1,179.77 +26.17 +2.27% 9/18/2007 5:17:00 PM

MID S&P Midcap 400 Index-Mid 881.38 +25.41 +2.97% 9/18/2007 4:45:47 PM

MSH Amex Morgan Stanley Hi Tech 35 651.96 +16.00 +2.52% 9/18/2007 4:45:47 PM

NDX CBOE Nasdaq 100 Index 2,035.37 +52.29 +2.64% 9/18/2007 5:17:00 PM

NYA Nyse Composite Index New 9,909.03 +301.28 +3.14% 9/18/2007 5:06:00 PM

OEX S&P 100 Index 710.08 +18.96 +2.74% 9/18/2007 4:59:00 PM

How to Read the Stock Market INDEX Page—you do not need to take notes on this!

This is an index list.

Last= the price it stopped trading at

Symbol= ticker symbol for the index

Change= the difference between the current closing price & the previous day’s closing price

Change %= the percentage change between the current closing price & the previous day’s closing price

How to Read the Stock Market listing— You do not need to take notes on this!

Volume:24,116,79452wk Range:41.85 - 58.49P/E Ratio:17.51Dividend Yield:1.10%                                       

Prev. Close:44.54Open:46.98High:47.56Low:45.69

Best Buy Co., Inc (NYSE:BBY)

47.46 +2.92 / +6.56% Sep 18

NYSE=New York Stock Exchange

BBY=Ticker symbol for Best Buy

47.46 = price the stock closed at today

+2.92 = the Net Change the difference between the current closing price & the previous day’s closing price.

+6.56% = the Net percentage Change the difference between the current closing price & the previous day’s closing price.

Previous Close = what the stock closed at yesterdayOpen = The price it started trading at today

High = the high price the stock traded for todayLow = the low price the stock traded for today

Volume = the number of shares that were bought & sold today

52wk Range = the lowest to highest price this stock has traded at during the past 52 weeks

P/E Ratio = the price-earnings ratio, & is obtained by taking the latest closing price per share and dividing it by the latest available net earning per share. A high PE ratio usually indicates a stock that is experiencing a higher than average growth in earnings.

Dividend Yield: the dividend divided by the closing price

Bonds

Bonds • A bond is an IOU, or a promise to pay, issued by companies, governments, or government agencies to borrow money.

Components of a Bonds

Bonds • Face Value or Par Value—the dollar amount specified on a bond. •This is the total amount the bond issuer will repay to the bond buyer.

Buying Paper EE Bonds• Sold at half their face value; i.e., you pay $25 for a $50 bond but it's not worth its face value until it has matured (which can take 10-30 years depending on interest rates). EE Bonds can earn more than face value. • Purchase in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. • $30,000 maximum purchase in one calendar year. • Issued as paper bond certificates.

Types of Bonds

Types of

Bonds

• Corporate Bonds—issued by a private corporation

•usually have a face value of $10,000•Municipal Bonds—issued by state & local governments

•Not subject to federal taxes!!! •Treasury bills, notes & bonds—issued by the federal government

•Bills mature in 13, 26 or 52 weeks•Notes mature in 2 to 10 years•Bonds mature in 10 to 30 years

Review—True or False

1. The NYSE is the largest marketplace for the sale & purchase of stocks in the world.

2. There are 11 companies in the DOW Jones.

3. One reason to buy stock is for the expected gain in its price.

4. The face value of a bond is also called the par value.

Review—True or False

1. The NYSE is the largest marketplace for the sale & purchase of stocks in the world.

TRUE

2. There are 11 companies in the DOW Jones. FALSE

3. One reason to buy stock is for the expected gain in its price.

TRUE

4. The face value of a bond is also called the par value.

TRUE

If you are interested in short sales:

http://www.investopedia.com/university/shortselling/default.asp