INVESTING WITH STOCKS 4.03 Principles of Business

Stock Options Two Main Categories Preferred Pays dividends before common stock Pays dividends at a set rate Less risky than common stock Preferred stockholders do not have voting powers Common Represents general ownership in a company Shares in the profits No set rate for dividends Common stockholders invited to annual corporate meetings Common stockholders have one vote per share

Stock Transactions What are stockbrokers? A licensed specialist who buys and sells tocks and bonds at a set price. Stockbrokers are paid a fee for their services called a commission

Stock Transactions What is the stock exchange? Where the trading of securities (stocks and bond) take place Best-known stock exchange is the New York Stock Exchange in New York City What is the market value of stock? The price for which a share of stock can be bought and sold

Stock Table ABCDEFGHI 52 WeekSales HighLowStockDivYldPEVol 100s HighLowLastChg 12 1/8 8AAR /4 6 5/8 6 1/2-1/8 49 1/231 1/4ACF /437 5/8 37+3/4 26 1/216AMF /2 -3/8 6 1/8 3 1/8ARA /8 33

Stock Transactions Bull Market- refers to prices of securities rising for a long period of time Bear Market- refers to prices of securities falling for a long period of time

Selecting Stock Factors that could influence investors in selecting stock: – Economic factors can affect company profits Inflation Interest rates Consumer spending Employment

Selecting Stock Company factors – Has the company been profitable? – Do they have a lot of debt? – Do they have good management? – Do they have the potential to grow?

Selecting Stock Other Company factors Dividend yield Dividend per share/Market price per share = Dividend Yield Example: If the total yearly dividend is $2.40 and the selling price of the stock if $40, the yield would be : $2.40 = 0.06 or 6% $40 Price-Earnings Ratio The relationship between a stock’s selling price and its yield Selecting Stock

Yield Calculations Yield is usually calculated in the following way: current value – original value = yield original value Current value=closing price for the day Original price=price paid for stock Yield=Interest earned For example: a stock is bought at $40 and valued at $43: $43 – $40 $40 yield = 7.5%

Yield Calculations Dividends also may be added to the calculation. For example: a stock is bought at $40 and sold at $43, but also earned a $2 dividend during that time: $43 + $2 – $40 $40 yield = 12.5%