1. Stocks, Bonds, and Futures Why Buy Stock? Gain a Profit Limit the Risk on their investment Become a part of a corporation Profit Potential Capital gain- difference between higher selling price and lower original purchase Capital Loss- sells a stock at a price lower that the purchase price Limited Risk In Corp. stockholders enjoy limited liability Ownership Investors have some ownership in Corp. and can vote to elect the board of directors Stock Split- Overhead

2. How stocks are traded Brokers and Analysts Brokers- link buyers and sellers of stock Work for a firm that specialize in trading stocks and other securities Profit off commission or fee Investment Banks Buys and sells large blocks of stock Buy stock off of corporations and sell it to the general public Stock Exchanges NYSE-(1792) largest stock exchange in the US Before firms this is were stock was bought and sold Firm buys a “seat” @ NYSE in order to buy or sell stock Over the Counter Market Stocks that are not listed in the NYSE Smaller corporations sell stock here

3. 1 st buyers or seller must place an order with broker 2 nd broker arrange the purchase or sell by using NASDAQ Call other brokers that might have clients that want the same stock

4. Determinants of Stock Corporate Finances Measured in profits or losses Quarterly and annual earning reports are read carefully by investors High quality products and has a good long term prospects= buy

5. Determinants of Stock Investor expectations Watching fluctuation in stock index Bull market- Dow steadily rises over a period of time (buy) Bear market- when the Dow average falls for a period of time (sell) External Forces Government Statistics on unemployment, inflation, interest rates, and the # of new houses being built/etc.

6. Types of Stock Shares # of Portions issued Dividends Profits from your investment Common Stock Share Holders with a voice in how company is run and a share in a potential dividends Preferred Stock Guaranteed dividends with no voice in the running of company

7. Why buy Bonds? Yields have lower dividends than stock Less risk Corporate Bonds Come in large units ($1,000.00) Maturity period (long)/annual interest rate Government Bonds US Treasury Department issues Bond. Bills, and notes

8. Why buy futures? Futures Type of investment Trade of various types of products Agricultural products (corn, wheat, soybeans) Industrial Products Trader accepts investors money in exchange for a promise to deliver commodity to investor at a later date Buy now at a lower price save later

9. Review Questions List the main reasons people choose to purchase stock. How do an investor purchase stock? How do corporate finances, investor expectations, and external forces influence stock prices? How does the futures market offer risks to sellers as well as to investors?