1. Chapter 9 Section 3 Stocks, Bonds, and Futures http://www.youtube.com/watch?v=af Bw6FyPf34

2. I. Why Buy Stocks? Three main reasons: 1.Profit potential 2.Limit risk on the investment 3.Become part owner of a corporation

3. A. Profit Potential Profit in 2 ways: 1.Pay dividends Income stocks: pay consistent dividends Growth stocks: pay little or no dividends but increase in value 2.Sell at a higher price than purchase price Capital gain Capital loss

4. B. Limited Risk Annual amount of money you can lose is limited to the amount of money you invest

5. C. Ownership Investors become part owner in a company and get a vote Number of votes=number of shares Stocks split when prices are too high Shareholders must approve Prices usually go up

7. II. How Stocks are Traded A.Brokers put buyers and sellers together For commissions and fees B.Investment Banks buy and sell large blocks of stock Sell to the general public

8. C.Stock Exchanges The New York Stock Exchange (NYSE) Largest in the U.S. 3,000 companies trade 1000 stock transactions per second American Stock Exchange (AMEX) and 5 others

9. Brokerage firms must purchase a “seat” on the NYSE There are 1,366 seats Prices vary 1996 around $1.2 million The all time high for a seat was $1,475,000 in July 1997 The low was $2,750 in 1871

10. D.Over-The-Counter Market (OTC) Stocks not listed on the NYSE or other markets Smaller corporations Brokers are still needed Use a service called NASDAQ (National Association of Securities Dealers Automated Quotations)

11. The main factors influencing demand for a stock are: Investor expectations Corporate finances External forces Bull market: when the Dow rises steadily over a 6 month period Bear market: when the Dow falls over a 6 month period

12. What time period was there a bull market? When was there a bear market?

13. II. Why buy Bonds? Bond yields ~interest ~ lower than stocks but less risky If a company goes out of business, bondholders must be paid before stock holders

14. III. Why buy Futures? Futures: Ag products, steel, coal, precious metals High risk Investor’s pay today in exchange for a promise to deliver a commodity later Purchase to resell at a profit The trader hopes that the price will drop

15. http://www.youtube.com/watch?v=g4Uv4ftekaI How commodities work: