Stocks and Bonds © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Review 1) How can you apply the rule of 72 to investing? Tells us how long it takes for an investment to double in value at a given interest rate 2) Tom and Sarah have a two month old baby girl and they are already planning for her college costs. Do you recommend that Tom and Sarah look mainly at low, moderate, or high risk investments? Moderate risk because of the moderate to long term time frame. 3) Elliot’s stock broker is suggesting that he consider investing in a diversified portfolio. Why is a diversified portfolio desirable? Decreases risk by investing money in a variety of investment tools 4) How is risk related to return? The higher risk you take on, the higher potential for return © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stocks Stock: share of ownership in a company, also called a share Stockholder: owner of the stock, also called a shareholder © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Why Companies Issue Stock When a company would like to grow, it issues stocks to raise funds and pay for ongoing business activities. Research better ways to make things Create new products Improve the products they have Hire more employees Enlarge or modernize their buildings It is popular because: The company does not have to repay the money Paying dividends is optional Dividends are distributions of earnings paid to stockholders © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stocks Buying stock can be risky, since while the price of the stock may go up, it may also go down. If the company goes bankrupt, then you could potentially lose all the money you invested in the stock. Purchasing stock is taking a risk, in the hope of making money on your investment, with no guarantee that you will make money.   © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Types of Stock Common stock: Could pay variable dividends and gives owners (stockholders) voting rights Could vote on issues such as who the company directors will be Preferred stock: guarantees a fixed dividend but does not provide voting rights Less risk than common stock so the stock typically costs more If the company goes bankrupt, preferred stockholders would be paid before common stockholders © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stocks Terms Blue Chip: a safe investment that generally attracts conservative investors, usually issued by the strongest and most respected companies, ex. AT&T, Nike, Microsoft, Visa Capitalization: total amount (value) of stocks and bonds issued by a corporation Small-Cap Stocks: a stock issued by a company with a capitalization of $500 million or less, ex. many energy companies Large-Cap Stocks: a stock from a corporation that has issued a large number of shares and has a large amount of capitalization, ex. Apple, IBM, Exxon © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stock Symbols Stock Symbol- a group of letters standing for a particular stock, mutual fund, or other security. Also called a ticker symbol or stock abbreviation. Can you name these tickers? MMM HD AA XOM AXP JNJ KO MCD GE WMT GM DIS © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Buy Low, Sell High The stock market is an everyday term we use to talk about a place where stocks and bonds are "traded" – meaning bought and sold. The goal is to buy the stock, hold it for a time, and then sell the stock for more than you paid for it. © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Market Conditions Bull Market: Market condition that occurs when investors are optimistic about the economy and buy stocks Bear Market: Market condition that occurs when investors are pessimistic about the economy and sell stocks © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stock Exchange A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. The New York Stock Exchange (NYSE) Hybrid market combining floor-based and electronic trading Large companies such as Coca Cola, Wal-Mart and McDonalds NASDAQ Computer based trading system Tech companies such as Cisco, Dell, Intel, Microsoft and Oracle American Stock Exchange (AMEX) Smaller stock exchange Small cap stocks Ex. Small companies specializing in energy, metal, oil, etc. © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stockbroker To purchase company stock listed on the NYSE, the investor places an order through a stockbroker or a brokerage account. Stockbroker: a financial representative who handles the buying and selling of securities © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stock Market Index A stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stock Market Indices Dow Jones Industrial Average (“DOW”) Lists the 30 leading industrial blue chip stocks (stock of a large, well-established and financially sound company that has operated for many years) Standard and Poor’s 500 Composite Index Covers market activity for 500 stocks More accurate than DOW because it evaluates a greater variety of stock National Association of Security Dealers Automated Quotations (“NASDAQ”) Monitors fast moving technology companies Speculative stocks, show dramatic ups and downs © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Supply vs. Demand The stock exchange is organized based upon the laws of supply and demand Supply is the relationship of prices to the quantities of a good or service sellers are willing to offer for sale at any given point in time Demand is the relationship of prices to the quantities and the corresponding quantities of a good or service buyers are willing to purchase at any given point in time. © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Bonds Form of lending to a company or the government (city, state, or federal) Annual interest is paid to investor Once the maturity date is reached, the principal is repaid to the bondholder Less risky than stocks, but lower potential return © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Bond Terms Face Value: The amount that a bondholder will receive at bond’s maturity Maturity Date: The date when a bond will be repaid © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Government Bonds Issued by the U.S. Treasury or by U.S. government agencies Low risk investments when held to maturity The interest earned from most of these investments is subject to federal taxes but not state and local taxes © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Municipal Bonds Issued by states, counties, cities, and towns Used to pay for projects, such as roads or public buildings Do not have to pay federal, state, or local taxes on the income from municipal bonds Considered low risk investments Although it is possible for a government unit to go bankrupt, it is not very likely. © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Corporate Bonds Issued by corporations to raise money A form of borrowing for the company Build a new factory or buy equipment Corporate bonds pay a coupon rate Coupon rate: the fixed rate of interest that is paid semiannually for the life of a bond So, the reason many people invest in corporate bonds is to receive regular (semiannual) interest payments, and at maturity, the bond can be redeemed for face value © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Bond Ratings Investors can use bond ratings to judge the risk of buying a bond. Three main rating agencies: Moody’s Investors Services Standard & Poor’s Fitch ratings © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Types of Bonds Investment-grade bonds: have high ratings (AAA, AA, A, and BBB) and are considered fairly low-risk Junk bond: Junk bonds are risky investments, but have appeal because they offer much higher yields than safer bonds. Companies that issue junk bonds typically have less-than-stellar credit ratings, and investors demand these higher yields as compensation for the risk of investing in them © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Corporate Reports The federal government requires corporations selling stocks or bonds to provide investors with a: Prospectus- Document that discloses information about a company’s earnings, assets, and liabilities © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.

Stock or Bond? 1) A share of ownership in the company 2) Lending a company money to help finance a project Bond 3) High risk, potential for high return 4) Prices determined by supply and demand 5) Ratings are used to judge the risk 6) Subject to federal, but not state/local taxes © 2018 Business Girl. Image Credit to Unsplash. All Rights Reserved.