E. Napp The Stock Market In this lesson, students will be able to identify characteristics of the stock market. Students will be able to identify and/or define the following terms: Stock Dividend Capital Gain and Capital Loss Dow Jones Industrial Average New York Stock Exchange

E. Napp Do you remember the investment poem? Stocks, you own. Bonds, you loan.

E. Napp Stocks When a person buys stock, he is buying partial ownership in a corporation. If the corporation prospers, the investor prospers. If the corporation fails, the investor can lose his investment.

E. Napp A stock certificate is a piece of paper that shows partial ownership in a corporation.

E. Napp Profiting from Stocks There are two ways a stock investor can profit from his stocks: Dividends: payments made by corporations to stockholders Capital Gain: selling a stock for more than its original purchase price

E. Napp However, sometimes a capital loss occurs. A capital loss occurs when an investor sells his stock for less than the original purchase price.

E. Napp Stock Markets Stocks can be purchased in the following stock markets: The New York Stock Exchange (NYSE): handles the most powerful and established companies NASDAQ-AMEX: handles mostly newer technology stocks

E. Napp The New York Stock Exchange (NYSE) handles the most powerful and established companies.

E. Napp The Dow Jones Industrial Average Is one of the largest business and financial news companies in the world The Dow monitors and reports generally on the trading activities of thirty of the most powerful companies.

E. Napp The Dow is either up or down. If the Dow is up, stocks are selling at higher prices. If the Dow is down, stocks are selling at lower prices.

E. Napp Bull and Bear Markets A bull market occurs when the stock market rises steadily over a period of time. A bear market occurs when the stock market falls over a period of time. Stock indexes, like the Dow, allow investors to track the progress of the stock market.

E. Napp Investors love bull markets. But remember, what goes up, most come down.

E. Napp While investors may not like bear markets because selling prices are low, bear markets are excellent times for buying shares at lower prices.

E. Napp STOCK Questions for Reflection: What is the difference between owning stocks in a corporation and owning bonds in the same corporation? List two ways investors can make money owning stocks. List two markets from which investors can purchase stocks. Why is the Dow Jones Industrial Average important? What is the difference between a bull market and a bear market?

E. Napp Do you remember the investment poem? Stocks, you own. Bonds, you loan.

E. Napp Bonds Bonds are loans. An investor loans money to a corporation or a government. The corporation or government must repay the loan with interest.

E. Napp This is a U.S. Savings Bond. When an investor buys this bond, he is loaning money to our Government.

E. Napp The Three Components of a Bond: Par Value: This is principal or original amount of the investment. Coupon rate: This is the interest rate on the bond. Maturity: This is the end of the period. This is the moment when the par value and the coupon rate are paid.

E. Napp To receive all of the possible interest accrued on the bond, an investor must wait until the bond matures.

E. Napp Bonds and Risk While there are many different types of bonds, most bonds are relatively safe investments. Due to the relative safety of bonds, investors do not make as much money investing in bonds as they do stocks. However, not all bonds are safe.

E. Napp The more likely the investment is to fail, the more money the investor would make it if succeeds.

E. Napp Types of Bonds An investor can buy U.S. Savings Bonds and U.S. Treasury Bonds. These are relatively safe investments. An investor can also buy a bond from a corporation. A junk bond is a highly risky bond issued from a failing corporation.

E. Napp Investors are more likely to lose their investments when they purchase junk bonds. However, if the company improves, the investor will make a huge profit.

E. Napp Risk and Profit Investors risk their money hoping to make more money. High-risk investments are investments that are more likely to fail. However, higher risk leads to greater profits. Remember, trade-offs!

E. Napp While bonds, excluding junk bonds, are generally safe investments, all investment involves some element of risk.

E. Napp

Questions for Reflection: What is the difference between owning stocks in a corporation and owning bonds in the same corporation? List two ways investors can make money owning stocks. List two markets from which investors can purchase stocks. Why is the Dow Jones Industrial Average important? What is the difference between a bull market and a bear market?

E. Napp BONDS: Questions for Reflection: What is a bond? List the three components of every bond. How does par value differ from the coupon rate? Why is maturity important for the investor? How do junk bonds differ from other bonds? What is the relationship between risk and profit?