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INVESTING WITH STOCKS 4.03 Principles of Business

INVESTING WITH STOCKS 4.03 Principles of Business. Stock Options Two Main Categories. Preferred Pays dividends before common stock Pays dividends at a set rate Less risky than common stock Preferred stockholders do not have voting powers. Common Represents general ownership in a company

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INVESTING WITH STOCKS 4.03 Principles of Business

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  1. INVESTING WITH STOCKS 4.03 Principles of Business

  2. Stock OptionsTwo Main Categories Preferred • Pays dividends before common stock • Pays dividends at a set rate • Less risky than common stock • Preferred stockholders do not have voting powers Common • Represents general ownership in a company • Shares in the profits • No set rate for dividends • Common stockholders invited to annual corporate meetings • Common stockholders have one vote per share

  3. Stock Transactions What are stockbrokers? • A licensed specialist who buys and sells tocks and bonds at a set price. • Stockbrokers are paid a fee for their services called a commission

  4. Stock Transactions What is the stock exchange? • Where the trading of securities (stocks and bond) take place • Best-known stock exchange is the New York Stock Exchange in New York City What is the market value of stock? • The price for which a share of stock can be bought and sold

  5. Stock Table

  6. Stock Transactions • Bull Market- refers to prices of securities rising for a long period of time • Bear Market- refers to prices of securities falling for a long period of time

  7. Selecting Stock Factors that could influence investors in selecting stock: Economic factors can affect company profits Inflation Interest rates Consumer spending Employment

  8. Selecting Stock Company factors • Has the company been profitable? • Do they have a lot of debt? • Do they have good management? • Do they have the potential to grow?

  9. Selecting Stock Selecting Stock Other Company factors Dividend yield Dividend per share/Market price per share = Dividend Yield • Example: If the total yearly dividend is $2.40 and the selling price of the stock if $40, the yield would be : $2.40 = 0.06 or 6% $40 Price-Earnings Ratio The relationship between a stock’s selling price and its yield

  10. Yield Calculations Yield is usually calculated in the following way: current value – original value = yield original value Current value=closing price for the day Original price=price paid for stock Yield=Interest earned For example: a stock is bought at $40 and valued at $43: $43 – $40 $40 yield = 7.5%

  11. Yield Calculations Dividends also may be added to the calculation. For example: a stock is bought at $40 and sold at $43, but also earned a $2 dividend during that time: $43 + $2 – $40 $40 yield = 12.5%

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