 Goals:  Describe ways to purchase different types of stock.  Explain differences between investing in corporate stocks and corporate bonds.

 There are two ways to invest in a corporation  Corporate stocks  Corporate bonds  First we will focus on corporate stock!  A share of corporate stock is a unit of ownership in a corporation.  Stockholders are the investors who own the corporation because they own shares of stock.

 Corporations sell shares of stock to raise money for the business.  Investors buy shares of stock in the hope of earning a return on your investment.  Stock prices move up and down in response to how successful a corporation is. More people buy the stock when it is doing well (prices rise) and people sell when it is doing poorly (prices decline)  If the corporation makes a profit you could earn a two part return:  Dividend – portion of a company’s profit paid to the owners  Increase in the price of the stock

 Suppose you bought 100 shares of stock for $20 per share.  What is the total you invested?  $2,000  A few months later, the stock is selling for $30 per share. If you sell the stock at $30 per share, what will be your profit?  $30 X 100 shares = $3,000  $3,000 - $2,000 = $1,000 profit  The profit you earn from selling stock at a higher price than you paid for it is called a capital gain.  If your stock decreases in value and you sell it for a lower price than you paid for it. The amount you lose is called a capital loss.

 Transactions, sales or purchases of shares, are usually conducted through a stockbroker who works for a brokerage firm.  Brokerage firm- a company that specializes in helping people buy and sell stocks & bonds.  Stockbroker- a person who handles the transfer of stocks & bonds between buyer & seller.  The other way to trade stock is on NASDAQ  Dollar-cost averaging means investing equal amounts of money at regular intervals; this is a common investing strategy to get more shares at a lower price

 A stock exchange is a location where orders to buy or sell stocks are sent and carried out.  Which is the largest one in the world?  New York Stock Exchange (NYSE)  NASDAQ is an electronic stock-trading system that links brokerage firms. Stocks can be bought or sold without using a central location.  National Association of Securities Dealers Automated Quotation System (NASDAQ)

 Preferred stock: a nonvoting share that pays a fixed dividend.  Preferred stockholders receive the same dividend unless the company suffers a loss.  Preferred stockholders do not have the right to vote on how the company is run.  Common stock: a voting share for which the dividend varies.  Each corporation’s board of directors is elected by the common stockholders to oversee the operation of the company.  Common stock holders have the right to vote on important corporate decisions. They normally have one vote for each share that they own.

 Preferred stock is less risky than common stock. Preferred stockholders receive their share of the company’s assets before common stockholders.  Common stock generally has a better return than preferred stock in the same corporation.

Blue Chip Large, well- established corporations Large Cap Largest corporations in the world; total stock value of $10 Billion + Growth Smaller or younger corporations that are expected to have rapid growth Mid Cap Large but not enormous corporations; total stock value of $2 – 10 Billion Small Cap Most numerous but smallest corporations; substantial risk of failure but may have highest returns

 Another way to invest in corporations is to buy the bonds they sell.  Corporate bonds – Bonds sold by corporations to finance business activities, which usually pay a fixed rate of interest and are paid off after a specific period of time.

 You are basically lending money to a corporation. Corporations must make interest payments and repay their bonds on time, even if they earn no profit.  This makes bonds issued by a firm less risky than stock in the same firm. Unless the corporation fails, you will be paid.  Since bonds are less risky, they generally have a lower return.

 Some corporate bonds are high-risk investments.  They offer high interest rates to encourage people to buy them. These high-return, high-risk bonds are called high-yield bonds or junk bonds.  Junk Bonds – Corporate bonds that are high-risk investments