Corporations  Businesses can be publically or privately owned  Corporation – a company that is publically owned  stocks or bonds are sold to raise money for the company

Stock Basics  Share of stock – a unit of ownership in a corporation  Stockholders – the investors who own the corporation (own shares)  Dividend – a share of the corporation’s profit  Capital Gain – profit earned from increase in price of shares  Capital Loss – loss due to decrease in price of shares

How do stockholders make money?  The stockholders’ return includes dividend payments and capital gains.  Stock prices change when:  Large profits -> High dividends -> High demand for stock -> Increase in price of shares  -> = lead to

Trading Stocks  Transactions – the sale or purchase of a share  Stockbroker – a person who handles the trading of stocks and bonds between buyer and seller  Commission – fee paid to broker for transaction  Brokerage Firm – a company that specializes in helping people trade stocks and bonds  fees: a % of the total value of the transaction ($50 - $100s)

Trading Stocks (cont.) Investors buy and sell stocks through A) a stock exchange – orders to trade stocks are sent and carried out - Ex. NYSE (Wall Street) B) NASDAQ – an electronic system used to trade stocks online - less expensive and operates for longer hours than an exchange, not limited by space

Types of Corporate Stock Preferred Stock: - a nonvoting share that pays a fixed dividend - same dividend unless corporation loses - No vote in how corporation is run

Two Types of Corporate Stock (cont.) Common Stock: - a voting share that does not pay set dividend - Board of Directors - elected by stockholders to oversee operation of company - sets dividend each year depending on profits and need to reinvest - stockholders have the right to vote on major decisions

Two Classes of Stock Blue Chip Stocks: - shares in large, well-established corporations - Lower risk – no rapid change, steady sales/profit - Much of the return is from dividends - Ex. Walmart, Coke, Gilette

Two Classes of Stock Growth Stocks: - shares in a corporation that is expected to experience rapid growth - smaller or younger corporations that produce new products - higher risk = greater chance of failure - Pays little to no dividends, but potential for high capital gains - Ex. Microsoft, IBM during late 80’s early 90’s

Factors That May Increase Stock Price Strong Economic Growth Low Interest Rates Low Inflation Strong Industry Conditions Proper Decisions by the firm Investors Expect firm to perform well Strong demand for firm’s stock’ Low supply of firm’s stock for sale

Factors That May Decrease Stock Price Weak Economy High Interest Rates High Inflation Weak Industry Conditio ns Improper Decisions by the Firm Investors Expect firm to perform poorly Weak demand for firm’s stock Large supply of firm’s shares for sale