9.02 Summarize the investing in stocks and bonds. T H17

Investing in Bonds Bonds –Promise to pay a definite amount of money at a stated interest rate on a specified maturity date. Bondholder –Individual who lends money to a corporation. T H18

Bond Terms Face Value –Amount being borrowed by the seller of the bond. Coupon Rate –Rate of interest on the bond. T H19

Types of Bonds Corporate Bonds –Issued by corporations –Used to finance buildings and equipment. Municipal Bonds –Issued by local and state governments. –Used to finance schools, roads, airports, etc. H20 T

Types of Bonds Treasury Bonds –Issued by federal government. –Known as Savings or Federal Bonds –Types: Series EE Bonds –Cost half the face value. –After a specified number of years the bond becomes worth the face value. Treasury Bills –Issued for three months to one year. Treasury Notes –Issued for two to ten years. Treasury Bonds –Issued for ten or more years. T H21

Investing in Stocks Stock –Share of ownership in a business. Stock Certificate –Proof of ownership in a corporation Market Value –Price at which a stock can be bought or sold. Dividends –Part of profits shared with stockholders. T H22

Types of Stocks Preferred –Priority over common stockholders in the payment of dividends. –No voting rights. Common –General ownership in a corporation and a right to share in the corporation’s profits –Right to vote at shareholder meetings One vote per share. T H23

Reading a Stock Quotation Table 52 Week Hi – Highest price during previous 52 weeks 52 Week Lo – Lowest price during previous 52 weeks Stock – Company name abbreviated Stock Symbol – Ticker symbol Dividend – Current dividend in dollars per share based on the last dividend paid Yield – Dividend yield based on the current selling prices per share T H24

Reading a Stock Quotation Table PE – (Price/Earnings ratio, comparing the price of the stock with earnings per share). Volume – Number of shares traded. High – Highest price during the day. Low – Lowest price during the day. Close – Closing price for the day. Net Change – Change in the closing price today compared with closing price on the previous day. T H25

2.Floor broker (buyer) goes to the trading post at which time this specific stock is traded. It is traded with the floor broker (seller) who has an order to buy. T H26 Typical transactions follow these steps: 1.Account executive receives your order to sell stock and relays to the brokerage firm’s representative at the stock exchange. 3.A clerk signals the transaction to a floor broker on the stock exchange floor.

T H27 5.The sale appears on the price board, and a confirmation is relayed back to your account executive, who then notifies you of the completed transaction. 4.Floor broker (buyer) signals the transaction back to the clerk. Then a floor reporter – an employee of the exchange – collects the information about the transaction and inputs it into the ticker system.

Brokerage Firm Sells stocks for consumers Broker –Person who acts as a go between for buyers and sellers of securities. Commission –Fee charged by a brokerage firm for the buying and/or selling of a security. T H28

Stock Exchanges Marketplace where brokers who represent investors meet to buy and sell securities. Examples: –NYSE –NASDAQ –AMEX –Exchanges in San Francisco, Boston, Chicago T H29

Types of Markets Bull Market –Occurs when investors are optimistic about the economy. Bear Market –Occurs when investors are pessimistic about the economy. T H30

Numerical Measures for a Corporation Current Yield –Annual dividend divided by current market value. Price/Earnings Ratio –Price of one share of stock divided by the earnings per share. T H31

Selling a Stock Total Return –Calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment. Capital Gains –Profit from the sale of an asset such as stocks, bonds, or real estate. Taxed as income. Capital Loss –Sale of an investment for less than its purchase price. Subtract up to $3,000 in losses from your income. T H32