1. Investments & The Stock Market
Chapter 11

2. Investments Nations must have a
Financial System for investments to work.
2 ways investments help:
Allow people to make a profit
Promote economic growth & contributes to the nation’s wealth
Always remember: Your return on an investment, usually depends on the type & risk, of the investment.

3. Investments Types of investments through saving: Financial Assets
CD Certificate of Deposits
Financial Assets
(securities)
Savings account
Bonds

4. Financial Intermediaries Can help with investments
Share the risk to avoid loss of all savings through diversification
Provide Information through
prospectus to avoid research,
time & money spent
Provide liquidity, to avoid
having to find buyers to turn
items into cash.

5. Types of Financial Intermediaries
Banks
Mutual Funds
Pension Funds
Credit Unions
Savings & Loan Association
Life Insurance Companies
Finance Companies

6. Types of investments Bonds Cds (Certificates of Deposits) Mutual Funds
Stocks

7. Think of it as a loan, that you are giving, to the government or a company.
Bond
A certificate a company or government issues in exchange for borrowed money
Promises to repay a stated borrowed amount plus interest over a period of time (when maturity is met)

8. Bonds
A person can sell their bond for less or par value to another person.
Issuers pros & cons
Pros
Cons
Holders do not own a part of company
Fixed payment plans & interest rates, no matter how company is doing
Fixed payment plans

9. Researching bonds Research Companies: What to look for?
Standard & Poore’s
Moody’s
What to look for?
Rated by: issuers ability to pay
AAA/ Aaa (highest) to D (lowest)
Higher the rate of the bond, the lower the interest rate is. (Less risky)
Higher rate bonds sell at higher prices or par value of the bond, at all times.

10. 3 Components to a bond
Coupon
Rate (Interest
Rate)
Maturity
Par Value

11. Types of Bonds Government Bonds
Issued by the government
to borrow money from the
public and businesses
Types of government
bonds include:
*savings bonds
*treasury bills
* T-notes
*T-bonds

12. Types of Bonds Savings Bonds Range from $50-10,000
Investor pays half of the bond’s face value and it’s value increases every 6 months until it reaches full face value
Usually matures in 10 to 15 years
Not taxed until turned in for the face value (exempt from state and local)
If cashed in before maturity a penalty is applied and will only get par value.
Government uses for projects
No default risk and no annual payments

13. Types of Bonds Municipal Bonds
Issued by a state, local, or city government to raise money for highways, government buildings, libraries, parks, and schools
Not subject to federal income tax or the state income taxes (where it was issued)
Risk is low, depending on government standing.

14. Types of Bonds Treasury Bills
Only given in $1,000.0 denominations
Safe from default
Mature in 3 months to 1year
$10,000 minimum amount of investment
Federal taxes due when the
t-bill matures
Exempt from state and
local

15. Types of Bonds Treasury Notes
Safe from default
Only given in $1,000.0 denominations
Types of Bonds Treasury Notes
Matures in 2 to 10 years
$1,000 to 5,000 minimum amount of investment
Federal taxes due when the
T-Notes matures
Exempt from state and local

16. Types of Bonds Treasury Bonds
Only given in $1,000.0 denominations
Safe from default
Types of Bonds Treasury Bonds
Matures in 10 or more years
$1,000 to 5,000 minimum amount of investment
Federal taxes due when the T-Notes matures
Exempt from state
and local

17. Types of Bonds Corporate Bonds
Used to expand & improve businesses
Value $1, to $10,000.00
Taxed as additional income (income tax)
Moderate risk
Depends on sells/ service of business
Watched closely and researched by companies & the Securities & Exchange Commission (SEC)
Prohibits fraud & dishonest investment practices & enforces laws

18. Types of Bonds Junk Bonds (High-Yield Securities)
Low rate bonds
B or lower rating and “speculative”
Higher interest rates
Risky

19. CD/ Certificate of Deposit
Similar to a savings account and bond
Purchaser places money into account, but you are not allowed to withdraw until maturity date is met.
If withdraw before maturity date, penalties will accrue.
Must hold within 6 month increments, with a minimum of $100.00

20. Mutual Funds (easiest way to invest with a little money)
Investment company that pools the money of many individuals to buy stock, bonds, or investments
Risk is higher than a savings account, but decreases through diversification

21. Financial Asset Markets
Capital Markets offer CDs, and Corporate/ Government Bonds; that must be held for at least 1 year.
Money Markets offer short-term CDs, T-bills & mutual funds
Primary Markets offer savings bonds & CDs
Secondary Markets provide liquidity to investors)

22. Stock Sold in shares which are pieces of a corporation sold
to raise money for resources
A Stockbroker that works for brokerage firm must be used to buy stocks they are licensed to sell and trade between sellers and buyers
Helps with research of companies stocks
Remember!!!!!!
Every time a stockbroker has to buy or sell stock for their clients; they will take a commission, no matter if you make or loose money.

23. Benefits of Buying stock
Dividends – money paid to stockholders for their share of the corporations profits.
Paid every quarter
Capital gain –profit made when
selling a stock at a higher price than
you purchased it for.
Capital loss – the money loss when
you sell your stock for less than
Happens
OFTEN

24. Types of Stocks Get Dividends Get Votes in the Company Income Stock
How do you choose a stock ?
Research – newspapers,
internet or brokerage firms
Get Dividends
Get Votes in the Company
Income Stock
Growth Stock
Reinvest earnings in its business, which increases its value.
Preferred Stock
Get dividends before common stock owners
Get paid 1st after bond owners, if company goes bankrupt.
Common Stock
1 vote per share & voting on stock split
Due because price is to high, to where people not buying stock
Price later rise again.
Most Popular Stocks
Blue chip Stocks
(safe bet)
Penny Stocks
( very risky, but can make
huge profits)

25. Places where stocks are bought & sold
New York Stock Exchange (NYSE) Largest stock and bond market where only the largest companies in the country are traded
American Exchange (AMEX)
second largest stock and bond market

27. Places where stocks are bought & sold
NASDAQ
The over the counter market (electronic trading) of stocks and bonds of smaller companies
Shares of stock are sold
in shares of a 100

28. Securities Exchange Commission (SEC)
Federal Regulatory Agency that regulates the trading of stocks and bonds
Established after the
Great Depression
Investigate any Inside Information, which is illegal

29. Where daytrading is shown
Most risky: because people are buying & selling dozens of stocks in a day, to try and make a profit
Dow An average of the top 30 largest companies stock price values that are traded on the NYSE
S+P 500 Includes the average of the stock price changes of 500 companies sold on the NYSE and the NASDAQ

30. Bull Market When investors and brokers believe that stocks
will continue to rise, due to
a steady rise in the
stock market over
a period time

31. Bear Market When investors and brokers believe that stocks
will continue to drop, due to
a steady drop in the
stock market over
a period time.