The Stock Market Chapter 11 Section 3

Buying Stock Besides bonds, corporations sell stock to raise money Stocks are issued as shares Stocks are also a claim of ownership in the corporation

Benefits of Buying Stock Stockholders can be paid in dividends- based on profits of the company Capital gain- sell the stock for more than originally paid for

Types of Stocks Divided on whether is pays dividends: income stock or growth stock Can also be classified based on if stockholder has a vote: common stock or preferred stock Stock split- happen when the price of a stock gets too high

Futures, Options, and Day Trading Futures allows you to establish a price for a commodity ahead of time Option: buy- call option; sell- put option Day trading- buying and selling stocks in one day

Risks of buying stocks Dividends can be smaller than expected Capital loss can occur as well Stocks are riskier than bonds “Bondholders first”

How stocks are traded Stockbroker is the middle man between companies and buyers Charge a commission on each transaction Stocks are bought and sold on stock exchanges Ex: NYSE and Nasdaq

Stock Exchanges NYSE- largest and most powerful in country, must own a “seat” to trade on the exchange. Only blue chip stocks are exchanged OTC market- electronic buying and selling between investors and dealers/ brokers Nasdaq- American market for OTC securities, 3 rd largest in the world

Bull and Bear Markets Bull market- prices raise steadily Bear- prices fall for a period of time

The Dow and S&P 500 The Dow- shows the history of certain stocks since 1896, tracks 30 large companies S&P 500- shows overall market performance, tracks 500 different companies in the NYSE, Nasdaq, and OTC markets

The Great Crash During the 1920s: long-term bull market  Oct stocks hit $87 billion Only a small % of people owned the stocks, people were buying goods on credit and companies were over producing People were making high-risk investments with life savings Black Tuesday- Oct. 29, million shares were sold for fractions of what they were bought at

The Great Crash Aftermath The Great Crash contributed to the Great Depression The Fed began limiting the money supply People grew hesitant to buy stocks Mutual funds emerge “Black Monday”: Oct. 18, 1987, The Dow Jones lost 22.6% The Fed helped stimulate the economy to get it above pre-crash levels