1. SECTION 9-1

3. When investors buy shares of stock in a company. The company uses the money to: 1.make and sell its products 2.fund its operations 3.Expand If the company earns a profit, the stockholders earn a return, or a gain, on their investment.

4. People buy and sell stock for one main reason: They want a larger return than they can get from more conservative investments, such as savings accounts or government bonds.

6. HOW DO INVESTORS MAKE MONEY ON STOCKS? Investors will purchase shares of stock from a company and if a company’s stock price will increase, the investor can sell and then make a profit. Some things that can affect stock prices (positively or negatively) include: 1.Supply and demand (the more people that want the stock “demand” the higher the price) 2.Expected sales revenues 3.Earnings 4.Company expansions 5.Merger announcements

7. MOST INVESTORS PURCHASE COMMON STOCK TO MAKE MONEY 3 WAYS 1.Income from dividends 2.Appreciation of Stock Value 3.Increased Value from Stock Splits

9. STOCK SPLITS Your profits can increase through a stock split. A stock split occurs when the shares of stock owned by existing stockholders are divided into a larger number of shares.

10. 2 FOR 1 SPLIT In a 2 for 1 split, you would NOW have 2 shares for every 1 share you own. You would double the amount of shares you own. If you own 20 shares of $50 per share stock and the company issues a 2 for one split—you would now own 40 shares of $25 per share stock. Companies split stock because they believe there is an ideal price for their stock, if it starts getting too expensive, people may not want to buy it and it would not attract as many investors. The lower price may attract more investors.

11. MORE BENEFITS All stockholders may vote on company business at a yearly meeting. Stockholders usually get 1 vote per share. Current stockholders may get first chance to buy more shares of stock if the company decides to issue more stock. That way they can keep their same % of ownership. This is called a preemptive right.

12. TRACKING YOUR STOCK INVESTMENTS 1.Monitor 2.Watch the financials 3.Track the products 4.Watch the economy 5.Be patient

13. PREFERRED STOCK You have the option to buy common or preferred stock. Preferred stock gives the stockholder the advantage of receiving cash dividends first.

14. PAR VALUE The par value of stock is the assigned dollar value that is printed on a stock certificate. The par value does not change.

15. WHY CORPORATIONS ISSUE PREFERRED STOCK Few corporations use preferred stock as a way of raising money. It is a way to attract more conservative investors. Preferred stockholders have limited voting rights and only vote if the corporation is in financial trouble.

16.  Preferred stock is called a “middle investment.’  Preferred stock is considered “safer” than common stock, but not as safe as bonds.  Preferred stock lacks potential growth that common stock offers.  Preferred stock is not considered a good investment for most people.

17. TO MAKE PREFERRED STOCK MORE ATTRACTIVE….

18. REVIEW 1.Why do corporations issue common stock? 2.Why do investors purchase common stock? 3.Why do investors purchase preferred stock? 4.Justify a corporations decision to split is stock when the stock price has risen significantly. 5.Joe’s grandmother recently gave him 25 shares of preferred stock. Joe would like to figure our the actual dollar amount of the dividend, which is a percentage of the par value of the stock. The par value of each share is $45 and the dividend rate is 6 %. What is the total dollar amount that Joe would receive each year?

19. 8 CLASSIFICATIONS OF STOCK INVESTMENTS 1.Blue-chip stocks 2.Income stocks 3.Growth stocks 4.Cyclical stocks 5.Defensive stocks 6.Large-cap stocks 7.Small-cap stocks 8.Penny stocks

20. BLUE-CHIP STOCKS A blue-chip stock is considered a safe investment that generally attracts conservative investors. These stocks are issued by the strongest companies.

21. INCOME STOCKS Income stocks pay higher than average dividends. Dividends are predictable.

22. GROWTH STOCK A growth stock is issued by a corporation whose potential earnings may be higher than the average earnings predicted for all the corporations in the country. Do not pay dividends.

23. CYCLICAL STOCKS Has a market value that reflects the state of the economy. When economy is improving, market value goes up. During economic decline, market value goes down. These companies sell products and services that people would not buy during an economic decline.

24. DEFENSIVE STOCKS A defensive stock is a stock that remains stable during declines in the economy. Many blue-chip and income stocks are defensive stocks.

25. LARGE-CAP AND SMALL CAP STOCKS

26. PENNY STOCKS Penny stocks typically sell for less than a dollar a share. Issued by new companies whose earnings are unsteady. Prices can go up and down wildly. Risky but can have huge payoff.

27. WHERE CAN YOU EVALUATE STOCKS Newspapers The internet Stock advisory services Corporate news publications

28. BULL VS. BEAR MARKET

29. CURRENT YIELD Current yield is the annual dividend of an investment divided by the current market value. It is expressed as a percent. An increase in current yield is a sign of a healthy investment. Annual Dividend = Current yield Current Market value

30. CURRENT YIELD Suppose that Tyler purchases stock in EatGrapes.com. Assume that EatGrapes.com pays an annual dividend of $1.20 and is currently selling for $24 a share. What is Tyler’s current yield?

31. WHEN YOU INVEST IN STOCKS WHAT IS YOUR MAIN GOAL?

32. HOW DO YOU MAKE MONEY BY INVESTING IN THE STOCK MARKET?

34. TOTAL RETURN Total return is the calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment. Current return + Capital gain = Total return Current return = Dividend amt. x number of shares x years held By looking at what numbers belong in this side of the equation, what will the current return calculate for you? (in your own words)

35. TOTAL RETURN Total return is the calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment. Current return + Capital gain = Total return (Selling price per share – Purchase price per share) x # of shares held By looking at what numbers belong in this side of the equation, what will the Capital gain calculate for you? (in your own words)

36. HOW DO YOU MAKE MONEY BY INVESTING IN THE STOCK MARKET? CURRENT RETURN CAPITAL GAIN CURRENT RETURN + CAPITAL GAIN = TOTAL RETURN

37. TOTAL RETURN (EXAMPLE PROBLEM ON HANDOUT) Two years ago Mark bought 40 shares of Ferguson’s Motor Company for $70 a share. The stock pays an annual dividend of $1.50. Mark is going to sell his stock at the current price of $120 a share. What would be the total return on his investment?

38. Current return + Capital gain = Total return (Dividend x number of shares x years held) + (selling price per share – purchase price per share) x number of shares held 240 120 $120$7040 - 1.50 50505050 40x= + 120 2000+= $2120 x x +x= ( ) ) (

39. 3 years ago, Mary bought 40 shares of Facebook (FB) for $126.00 a share. The stock pays an annual dividend of $1.27 a share. Mary is going to sell her stock at the current price of $72.50 a share. What would be the total return of her investment? Current ReturnCapital Gain Dividend amt. x # of shares x years held (Selling price per share – purchase price per share) x # of shares held

40. CURRENT RETURN + CAPITAL GAIN = TOTAL RETURN

41. A MY HAS IN INVESTED IN BARNES G ROUP I NC. (B), T HE HOME DEPOT (HD), AND T HE COCA - COLA C OMPANY (KO). All information you need to calculate Total Return for each of these investments is included on your handout. 1.Calculate the total return for each investment. 2.On the last page, explain the best investment. Support your decision with mathematical facts!

42. WHICH STOCK WAS THE BEST INVESTMENT FOR AMY? WHY? Home Depot was the best investment. Amy made the most amount of money investing in Home Depot. Home Depot had the highest current return and highest capital gain. What if Home Depot did not issue dividends for the period of time that Amy invested? How much would the total return be? $570.60 Would it still be the best investment? Yes because she still earned the highest capital gain with Home Depot.

43. If you chose an investment based on current yield, which one would have been the best choice? Coca-Cola (3.13%)

44. EARNINGS PER SHARE Earnings per share (EPS) measures the amount of corporate profit assigned to each share of common stock. An increase in this number is a good sign. Net earnings = EPS Common stock outstanding

45. EARNINGS PER SHARE EFG corporation had net earnings of $800,000 last year. EFG had 100,000 outstanding shares of common stock. What were EFG’s earnings per share?

46. PRICE-EARNINGS RATIO (PE) RATIO Price to earnings (PE) ratio is commonly used to compare the corporate earnings to the market price of a corporation’s stock. Market return per share = PE Ratio Earnings per share

47. PE RATIO EFG’s stock is selling for $96 a share. EFG’s earnings per share are $8. What is EFG’s price-earnings ratio?

48. INVESTMENT THEORIES

49. REVIEW 1.What are the different types of stock investments? 2.What are the sources that you might use to evaluate stock investments? 3.What numerical measures of corporations can be used to evaluate stock investments? 4.Two years ago, Andre bought 100 shares of Snowland, a ski apparel company. The price of the stock is up $10 from the $20 a share purchase price, and the stock even paid a dividend of $0.50 per share each year. Andre wants to determine his total return on the stock.

50. Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. 1. Some exchanges are physical locations where transactions are carried out on a trading floor. 2. The other type of exchange is virtual, composed of a network of computers where trades are made electronically. STOCK BASICS 101: STOCK EXCHANGES

51. STOCK BASICS 101: PRIMARY VS. SECONDARY MARKET The primary market is where securities are created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies.  Simply put, an initial public offering (IPO) occurs when a private company sells stocks to the public for the first time. The secondary market is what people are referring to when they talk about the stock market. It is important to understand that the trading of a company's stock does not directly involve that company.

52. STOCK BASICS 101: NYSE The most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal-mart, is the market of choice for the largest companies in America. New York Stock Exchange

53. STOCK BASICS 101: THE NYSE  The NYSE is the type of exchange where much of the trading is done face-to-face on a trading floor.  Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades.  At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell.specialistauction method  Once a trade has been made, the details are sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is human contact in this process, don't think that the NYSE is still in the stone age: computers play a huge role in the process.

54. STOCK BASICS 101: THE NASDAQ  The second type of exchange is the virtual sort called an over-the-counter (OTC) market, of which the Nasdaq is the most popular.over-the-counterNasdaq  These markets have no central location or floor brokers whatsoever. Trading is done through a computer and telecommunications network of dealers.  It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges.  The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

55. STOCK BASICS 101: OTHER EXCHANGES  The third largest exchange in the U.S. is the American Stock Exchange (AMEX). Almost all trading now on the AMEX is in small-cap stocks. American Stock Exchangesmall-cap  There are many stock exchanges located in just about every country around the world.  American markets are undoubtedly the largest, but they still represent only a fraction of total investment around the globe.  The two other main financial hubs are London, home of the London Stock Exchange, and Hong Kong, home of the Hong Kong Stock Exchange. London Stock Exchange

56. STOCK BASICS 101: BUYING STOCK 1. Using a Brokerage Brokerages come in two different flavors. Full-service brokerages offer you (supposedly) expert advice and can manage your account; they also charge a lot. Discount brokerages offer little in the way of personal attention but are much cheaper. Discount brokerages 2. DRIPs & DIPs Dividend reinvestment plans (DRIPs) and direct investment plans (DIPs) are plans by which individual companies, for a minimal cost, allow shareholders to purchase stock directly from the company.Dividend reinvestment plans

57. STOCK BASICS 101: HOW TO READ A STOCK QUOTE /TABLE Columns 1 & 2: 52-Week High and Low Column 3: Company Name & Type of Stock Column 4: Ticker Symbol Column 5: Dividend Per Share Column 6: Dividend Yield Column 7: Price/Earnings Ratio Column 8: Trading Volume Column 9 & 10: Day High and Low Column 11: Close Column 12: Net Change