Chapter 7 - Economics – Stocks and Bonds Corporations sell stock in their corporations to consumers. Stockholders/ Shareholders – people who buy stock in a corporation. They are part owners of the corporation. In turn, the corporation uses this money to help their business grow.

Stocks (Cont’d.) 2. Profits made by the business are distributed to stockholders/shareholder. These are called dividends. 3. There are two types of stock that people can buy: a. Preferred Stock – you receive a stated dividend each year. i. Do not get to vote at annual company meetings. b. Common Stock – Do not receive a stated dividend every year. If the company has enough money at the end of the year, they may pay Common Stockholders a dividend. i. Are allowed to vote at annual company meetings.

Buying and Selling Stock 1. A way to make money with stocks is through buying and selling individual stocks. 2. When you buy stock in a corporation, you are said to be making an investment in the corporation. a. Investment – using money to earn interest or income, in the hopes of making a profit.

Stocks (Cont’d.) b. Capital Gain – The profit between what you paid for the stock and profit that you make when you sell it. i. Example: You pay $1,000 for XYZ Corporation. You sell it six months later for $3, 000. Your capital gain is $2,000. c. Capital Loss – The loss between what you paid for the stock and your loss when you sell it. i. Example: You pay $3,000 for ABC Corporation. You sell it six months later for $1, 000. Your capital loss is $2,000. .

Stocks (Cont’d.) Due to the possibility of losing money, many people prefer safer investments(e.g. bank accounts, Certificate of Deposits (CD’s). With safer investments you don’t have to worry about losing money, but you don’t have to worry about losing it. Generally, people receive interest on these safe investments. a. Interest – the amount of money a person receives for money that he lends.

1. Stocks are bought and sold through stockbrokers. Where to Buy and Sell Stocks 1. Stocks are bought and sold through stockbrokers. a. Stockbroker – a person who is licensed to handle sales between buyers and sellers of stocks.

Stocks (Cont’d.) Most stocks are traded in a stock market. a. Largest Stock Markets in America are: i. New York Stock Exchange (NYSE) ii. American Stock Exchange (AMEX). iii. NYSE & AMEX are both located in New York City.

Dow Jones Industrial Average (“Dow”) a. Based on stock prices of 30 leading industrial companies. b. If the Dow is “up” it is a sign that most people feel confident about business and the economy and are buying stocks at higher prices. c. If the Dow is “down” it is a sign that most people do feel confident about business and the economy and are selling their stocks at lower prices.

Stocks (Cont’d.) 1. Over – the – Counter Stocks a. Stocks of small, lesser-known businesses.

Investing in Bonds 1. Bonds – an IOU. The person who buys a bond is lending money to the government or corporation that sells the bond. He/She is called a bondholder. a. Bonds are basically a way for a corporation or government to borrow money. i. The government or company selling the bond agrees to pay the bondholder interest on the borrowed money over time ii. Bondholder becomes a creditor – a person who is owed money. They do not become part owners of the company.

The Securities and Exchange Commission Securities and Exchange Commission (SEC) – federal agency that regulates the trading of securities. Securities – Stocks and Bonds.

Guidelines for Investing In Stocks and Bonds 1. Ask friends and relatives for recommendations for a stockbroker. 2. Think over your stockbroker’s advice carefully. Remember: It is YOUR money that he is investing. 3. Corporations will provide you with info about their stocks or bonds. Keep current on business and political news that may affect your investment.