1.  Stock: A share of ownership in a corp.  Shareholder: Partial business owner  Limited Liability- Can only lose up to what you invested!!  2 types of Stock: 1) Common Stock: Holder has voting rights (pick B.of D’s). Will not receive dividend until after bondholders and preferred stockholders have been paid. (Tends to be more volatile than pref. Stock)

2. 2) Preferred Stock: Holder has no voting rights but will receive a dividend before a common stock holder. Tends to provide more stability. Dividend: A portion of profit that is returned to the shareholders. Not always a true indication of good profit (Retained earnings v. R & D)

3.  You want to try to “buy low and sell high”- This is called a Capital Gain.  Consider this example:  You bought 50 shares of stock in Klein Corp. 8 months ago you bought the stock for $50 per share. Currently it is listed at $60 a share. How much did you gain or lose? 8 months ago:Currently: 50 shares X $50 = $2,50050 shares X $60 = $3,000 You have a Capital Gain of $500

4.  If the stock price falls after you buy it you will experience a capital Loss  You could make money if this happens if you did “short sell and cover” the stock.  Ex. Of short selling: You borrow 100 shares from your broker at $10 per share and you (short) sell them. When the price drops to $7.50 a share you buy 100 shares back(short cover) and return them to your broker and you gain $2.50 / share.  Dangers involve: Price going up, very slow price drop (interest adding up)

5.  Simple answer: Supply and Demand  If more people want to buy the stock (demand increases) than the Price goes UP (positive news, products, mergers, strong earnings, expected growth, etc.)  Bull Market: (Buyer’s Market) Overall stock prices on the rise  If more people want to sell the stock (Supply increases) than the Price goes DOWN (Negative news, recalls, poor quality products/ services, low earnings/ profit, etc.)  Bear Market: (Seller’s Market) Overall stock prices falling

6.  More complicated answer: Technical analysis:  Looking at stock quotes, financial info., past/present/ future earnings, studying line charts to ID trends.  Let’s take a look at some numbers on Google FinanceGoogle Finance  Yahoo can give you info. On industry averages Yahoo can give you info. On industry averages

8.  Outperform Mr. Klein and earn some extra credit and R-E-S-P-E-C-T!!  Join the action at:  www.howthemarketworks.com www.howthemarketworks.com

9.  Technical analysts compare a stock's current trading price to its 52-week range to get a broad sense of how the stock is doing, as well as how much the stock's price has fluctuated. This information may indicate the potential future range of the stock and how volatile the shares are.

10. Market Cap. = # of shares outstanding X Current market price Ex: 35,000,000 shares X $100/ share Market Cap = $3.5 Billion (Mid Cap) Large Cap = $10 billion + Mid Cap = $2 to $10 billion Small Cap= under $2 billion

11. Market value per share P/E Ratio = Earnings per share (EPS) P/E ratio = 20- means investor is willing to pay $20 for $1 of current earnings -Must compare “apples to apples”- P/E ratios are more beneficial when comparing stocks w/in the same industry. (Don’t compare P/E of a utility to a high tech)

12. Net Income – Dividends EPS= Average Outstanding Shares EPS can be misleading in that investors should consider how much capital/ investment was needed to reach this earnings level (Efficiency)

13. Annual dividends per share Dividend Yield = Price per Share Measures the “Bang for your Buck” (How much cash flow you get for each dollar invested) Ex: ABC Co.XYZ Co.Dividend = $1 Stock Price = $20Stock Price = $40 Dividend Yield = 5%Dividend Yield = 2.5% - Investor would likely favor ABC stock

14. Uses past perf. (Regression Analysis) Beta = 1- Stock prices move w/ the market Beta < 1- Stock is less volatile than the market (often “Utilities” stock) Ex:.5 (50% less volatile - Less risk, often less reward Beta > 1- Stock is more volatile than the market (Ex: 1.2- 20% more volatile) - More risk, often more reward