Personal Finance JOHN MALL JUNIOR/SENIOR HIGH SCHOOL

Stocks

 Companies issue shares of stock to raise money, which might be used to expand or to offer new products.  Investors who buy the shares are called stockholders.  Each stockholder gets a stock certificate that shows on its face the number of shares it represents  Stockholders usually buy and sell their shares through a broker.  The price at which a stock sells is called the market price or market value and is shown in stock tables in many daily newspapers. Buying Stocks

 When you buy stock through a broker, the total cost of the stock is the market price of the stock plus the broker’s commission.  Market Price + Commission = Total Cost  The amount of a broker’s commission depends on the services the broker provides, the price of the stock and the number of shares bought. Buying Stocks

 Velma bought 500 shares of Vesta stock at $15. The broker charged her $106 commission. Find the total cost of the stock.  500 x $15 = $7,500 Total Price of the Shares  $7,500 + $106 = $7,606 Total Cost of Shares Example

 Unlike bondholders’ investments, the money invested in the stock market does not have to be repaid.  Stockholders are owners of the company, not lenders.  However, stockholders have a right to share in company profits.  These profits are distributed to shareholders as dividends and are usually paid quarterly. Stock Dividends

 Many corporations issue two classes of stock – common stock and preferred stock.  A corporation sets a preferred stock’s dividends when it is first issued.  Common stock is the ordinary stock of a corporation and does not have a set dividend. Stock Dividends

 There is no guarantee that dividends will be paid to either class of stockholder  When dividends are paid, they go first to shareholders of preferred stock. Stock Dividends

 Gemma owns 100 shares of Melwork common stock, par value $100. If a dividend of 2.5% is declated, how much should Gemma get in dividends.  2.5% x $100 = $2.50 Dividend on One Share  100 x $2.50 = $250 Total Dividend Example

 The yield or the rate of income, received from an investment is found by dividing the annual income from the investment by the amount invested.  For stocks, the investment is the total cost of the stock, including any expenses or commission paid in obtaining the stock.  The income is the amount of annual dividends.  Yield = Annual Dividends / Total Cost of Stock Stock Yields

 Sandra bought 10 shares of Calcon, Inc. stock at $25. Her broker charged her $28 commission. If the stock pays an annual dividend of $1.20, what is the yield?  (10 x $25) + 28 = Total Cost of the Stock  10 x $1.20 = $12 Total Annual Dividend  12 / $278 = or 4.3% Annual Yield Example

 When you sell stock through a broker, you pay a commission. You may also pay charges such as a service fee, and a Securities and Exchange Commission Fee.  Your state may charge a transfer tax.  When you buy a stock, you do not pay a transfer tax or an SEC fee.  When you sell stock, the net proceeds is the market price less the commission and all the other charges. Stock Sales

 When you buy a stock, you do not pay a transfer tax or an SEC fee.  When you sell stock, the net proceeds is the market price less the commission and all the other charges.  Market Price – (Commission + Other Charges) = Net Proceeds Stock Sales

 Find the net proceeds from the sale of $100 shares of Danbury Corporation stock at $30.25 with commission and other charges of $86  100 x = $3,025 Total Cost of the Stock  $3,025 - $ 86 = $2,939 Net Proceeds Example

 The profit or loss on a sale of stock is the difference between the total cost of purchasing the stock and the net proceeds.  If the amount of the net proceeds is greater than the total cost, there is a profit.  If it is less than the total cost, the result is a loss  Net Proceeds – Total Cost = Profit  Net Proceeds – Total Cost = Loss Stock Sales

 Find the profit or loss from the sale of Danbury Corporation stock. You bought the 100 shares of stock originally at $21.50 a share and paid a commission of $68.55  100 x $21.50 = $2,150 Total Price of Stock  $2,150 + $68.55 = $2, Total Cost of the Stock  $2, $2, = $ Profit from Sale of Stock Example