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STOCK. A Study of Risk & Reward. Why do companies issue stock?. Corporations raise money by selling stock By selling SHARES, corporations can raise money to: Start Run Expand their business. STOCK represents ownership. There are TWO ways for shareholders to make a profit!.
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STOCK A Study of Risk & Reward
Why do companies issue stock? • Corporations raise money by selling stock • By selling SHARES, corporations can raise money to: • Start • Run • Expand their business STOCK represents ownership
There are TWO ways for shareholders to make a profit! • DIVIDENDS • A portion of the corporation’s profits are paid to shareholders • Higher Profits = Higher Dividends per share • CAPITAL GAINS • The difference in the purchasing price & selling price • Selling @ a HIGHER price = gain • Selling @ a LOWER price = loss
Stock prices reflect the value of a corporation to buyers. But if prices become too high, buyers won’t want to buy the company’s stock. STOCK SPLITTING • A third way investors can increase the return on their shares is stock splits. • A company doubles the number of shares you hold, but cuts their price in half.
HOW DO I PURCHASE STOCK? • Contact a STOCKBROKER • This is a person that links potential sellers & buyers. • Stockbrokers charge fees for conducting the sale.
TYPES OF STOCK • Income stock • Pays dividends. • These are usually large well-established firms. • Growth stock • Pays few dividends, profits are reinvested in the company. • These are new start-up companies
STOCK EXCHANGESMARKETS FOR BUYING AND SELLING STOCK • New York Stock Exchange (NYSE) • The oldest, largest and most prestigious exchange in the US • A company must have 300,000 shares of stock that are owned by at least 1,500 people • The largest companies are known as BLUE CHIP stock
STOCK EXCHANGES • Over-the-Counter (OTC) Markets • Stocks are bought and sold over computer terminals, not on the floor of an exchange • Stocks are listed on NASDAQ (the 2nd largest exchange in the US)
MEASURING STOCK PERFORMANCE • BULL MARKET • Stock market is rising steadily over a period of time. • BEAR MARKET • Stock market is steadily falling over a period of time.
MEASURING STOCK PERFORMANCE • Dow-Jones Industrial Average (DIJA) • Publishes a daily average of the closing prices of 30 stocks listed on the NYSE • Standard and Poor’s 500 • Uses the closing prices of 500 stocks listed on NYSE and NASDAQ
