Investing: Taking Risks with Your Savings Ch 6, Section 2 Investing: Taking Risks with Your Savings

Stocks Corporations Formed by selling shares of stock. This allows the company to obtain funds to expand its business. Stockholders – investors who own stock in a company making them partial owners. - make money through dividends, or by selling their shares of stock for a gain. Capital gains/losses gain: buy stock for $20, sell for $30 loss: buy stock for $40, sell for $25 Fun Fact: After October 10th, 1953, there has never been a day on the NYSE where less than a million shares have been traded.

Bonds Bonds – a certificate issued by a company or the gov’t in exchange for borrowed money. - It promises to pay a stated rate of interest over a state period of time. The period of time is called the bond’s maturity. - Does not make them a part owner like a stock would. Look at figure 6.4 on page 148.

Bonds Cont…. 3 types of bonds: Tax-exempt - bonds sold by local and state governments. The interest earned on these is not taxed. Savings bonds – sold by the U.S. gov’t as one of its ways to borrow money. Range from $50-$10,000. Very safe investment, interest is not taxed until the bond is turned in. T-Bills, T-Notes, T-bonds – sold by the treasury dept. T-bills 3mo-1yr, T-notes 1- 10yrs, T-bonds 10+yrs. Interest is exempt from local and state taxes but not from federal income taxes.

The Markets Broker – a person who acts as a middleman for buyers and sellers of stocks and bonds. http://www.youtube.com/watch?v=lEXZ2hfD3b U Stock Exchanges – place for brokers to trade stocks and bonds. Ex. NYSE http://www.youtube.com/watch?v=TPUDPhp CecA Over-the-Counter Markets – electronic marketplace for stocks not listed on the organized exchanges. Largest is NASDAQ. Mutual Funds – an investment company that pools the money of many people together to buy stocks, bonds, and other investments.