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Stocks, Bonds and Mutual Funds
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Write down these questions on your notes (leave answer space) What are Stocks? How does the Stock Market Work? Why Do People Buy Stock? Where are stocks bought & sold? How to buy & sell stocks? What is the difference between a stock and a bond?
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Student Objectives Students will understand the cost and benefits of investing in the stock market. Students will understand the cost and benefits of investing in mutual funds. Essential Learning #2: What role do incentives, benefits, costs and prices play in a market economy?
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State Standards 1 Students analyze the elements of America's market economy in a global setting Describe the functions of the financial markets.
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3 Asset Classes Stocks Bonds Mutual Funds
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What are Stocks? Stocks A stock is a claim on the assets of a corporation that gives the purchaser a share of the corporation!
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Now it is time to watch a video clip on Stocks!!! http://www.youtube.com/watch?v=GnJC Oof2HJk
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How does the Stock Market Work? Need MONEY If a company wants to raise money it has 3 sources: 1.Borrow from a bank 2.Issue Bonds 3.Sell or Issue stock in the company
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How does the Stock Market Work? IPO An Initial Public Offering (IPO) is a company’s first offering of stock to the public
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How does the Stock Market Work? Banks An investment bank acts as an intermediary between the company that issues the stock & the public
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Why Do People Buy Stock? $$$$ Millions of people around the world buy stock every day Some people buy stocks for the dividends Payments to stockholders based on a company’s profits People buy stocks for the expected gain in price (profit)
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Where are stocks bought & sold? Venues The New York Stock Exchange (NYSE) Other Stock Exchanges American Stock Exchange (AMEX) National Association of Securities Dealers Automated Quotations (NASDAQ) Foreign Exchanges & markets Stock brokers over the phone, in person, or online
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How to buy & sell stocks? Buying Stocks You can buy & sell through brokerage firms or online An account can be opened with as little as $1000 A full service broker will give you recommendations but will also charge larger commissions A discount broker or online broker will not give advice & charge smaller fees
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How do you decide which stocks to buy? Strategies for Buying Stocks Some buy shares of companies they like— Coca Cola, Disney, Microsoft Mutual Funds—a collection of stocks managed by a fund manager Several hundred people own shares in the mutual fund The fund manager controls the selling of the stocks to maximize overall returns Using a stock index (a portfolio of stocks) which represents a particular portion of the market DJIA—Dow Jones—industrial stocks NASDAQ—Technology Stocks
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The Dow Jones Industrial Average (DJIA) DOW The Dow Jones is the most popular cited indicator of day-to-day stock market activity It is a weighted average of 30 widely traded stocks (that do change from time to time) on the NYSE Charles Dow created it to tell people what was happening w/the market
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1.3M Company (MMM) 2.Alcoa Inc. (AA) 3.Altria Group, Inc. (MO) 4.American Express Co. (AXP) 5.American Int'l. Group (AIG) 6.AT&T Inc (T) 7.Boeing Co. (BA) 8.Caterpillar, Inc. (CAT) 9.Citigroup Inc. (C) 10.Coca-Cola Co. (KO) 11.DuPont deNemours (DD) 12.Exxon Mobil Corp. (XOM) 13.General Electric Co. (GE) 14.General Motors (GM) 15.Hewlett-Packard Co. (HPQ) 16.Home Depot, Inc. (HD) 17.Honeywell Int'l. Inc. (HON) 18.Intel Corp. (INTC) 19.International Bus. Mach. (IBM) 20.J.P. Morgan Chase & Co. (JPM) 21.Johnson & Johnson (JNJ) 22.McDonalds Corp. (MCD) 23.Merck & Co. Inc. (MRK) 24.Microsoft Corp. (MSFT) 25.Pfizer Inc. (PFE) 26.Procter & Gamble Co. (PG) 27.United Technologies Corp. (UTX) 28.Verizon Communications Inc. (VZ) 29.Wal-Mart Stores, Inc. (WMT) 30.Walt Disney Co. (DIS)
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SymbolIndex NameLastChange Change % Quote Date COMPNasdaq Composite Index2,651.66+70.00+2.71%9/18/2007 5:17:00 PM DJIADow Jones Industrial Average13,739.39+335.97+2.51%9/18/2007 4:06:00 PM DJTADow Jones Transportation Average4,932.86+186.23+3.92%9/18/2007 4:04:00 PM DJUADow Jones Utilities Average504.87+9.94+2.01%9/18/2007 4:04:00 PM IXCONasdaq Computer Index1,179.77+26.17+2.27%9/18/2007 5:17:00 PM MIDS&P Midcap 400 Index-Mid881.38+25.41+2.97%9/18/2007 4:45:47 PM MSHAmex Morgan Stanley Hi Tech 35651.96+16.00+2.52%9/18/2007 4:45:47 PM NDXCBOE Nasdaq 100 Index2,035.37+52.29+2.64%9/18/2007 5:17:00 PM NYANyse Composite Index New9,909.03+301.28+3.14%9/18/2007 5:06:00 PM OEXS&P 100 Index710.08+18.96+2.74%9/18/2007 4:59:00 PM How to Read the Stock Market INDEX Page—you do not need to take notes on this! This is an index list. Last= the price it stopped trading at Symbol= ticker symbol for the index Change= the difference between the current closing price & the previous day’s closing price Change %= the percentage change between the current closing price & the previous day’s closing price
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How to Read the Stock Market listing— You do not need to take notes on this! Volume: 24,116,794 52wk Range: 41.85 - 58.49 P/E Ratio: 17.51 Dividend Yield: 1.10% Prev. Close: 44.54 Open: 46.98 High: 47.56 Low: 45.69 Best Buy Co., Inc (NYSE:BBY) 47.46 +2.92 / +6.56% Sep 18 NYSE=New York Stock Exchange BBY=Ticker symbol for Best Buy 47.46 = price the stock closed at today +2.92 = the Net Change the difference between the current closing price & the previous day’s closing price. +6.56% = the Net percentage Change the difference between the current closing price & the previous day’s closing price. Previous Close = what the stock closed at yesterday Open = The price it started trading at today High = the high price the stock traded for today Low = the low price the stock traded for today Volume = the number of shares that were bought & sold today 52wk Range = the lowest to highest price this stock has traded at during the past 52 weeks P/E Ratio = the price-earnings ratio, & is obtained by taking the latest closing price per share and dividing it by the latest available net earning per share. A high PE ratio usually indicates a stock that is experiencing a higher than average growth in earnings. Dividend Yield: the dividend divided by the closing price
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Bonds A bond is an IOU, or a promise to pay, issued by companies, governments, or government agencies to borrow money.
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Components of a Bonds Bonds Face Value or Par Value—the dollar amount specified on a bond. This is the total amount the bond issuer will repay to the bond buyer. Buying Paper EE Bonds Sold at half their face value; i.e., you pay $25 for a $50 bond but it's not worth its face value until it has matured (which can take 10-30 years depending on interest rates). EE Bonds can earn more than face value. Purchase in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. $30,000 maximum purchase in one calendar year. Issued as paper bond certificates.
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Types of Bonds Corporate Bonds—issued by a private corporation usually have a face value of $10,000 Municipal Bonds—issued by state & local governments Not subject to federal taxes!!! Treasury bills, notes & bonds— issued by the federal government Bills mature in 13, 26 or 52 weeks Notes mature in 2 to 10 years Bonds mature in 10 to 30 years
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Review—True or False 1.The NYSE is the largest marketplace for the sale & purchase of stocks in the world. 2.There are 11 companies in the DOW Jones. 3.One reason to buy stock is for the expected gain in its price. 4.The face value of a bond is also called the par value.
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Review—True or False 1.The NYSE is the largest marketplace for the sale & purchase of stocks in the world. TRUE 2.There are 11 companies in the DOW Jones. FALSE 3.One reason to buy stock is for the expected gain in its price. TRUE 4.The face value of a bond is also called the par value. TRUE
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If you are interested in short sales: http://www.investopedia.com/univers ity/shortselling/default.asp
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