1. Stocks
Chapter 9

2. Section 9.1

3. Why Do Companies Sell Stock?
Make new products
Sell products
Fund its operations
Expand
To gain income that does not have to be repaid

4. Why Do Investors Buy Stock?
Make more money than conservative investments
Income from dividends
Appreciation of stock value
Increased value from stock splits
Voting rights and control of the company

5. Stock Splits Decreased price attracts more investors
Price starts to rise again
Before
After
Shares Issued
15,000
30,000
Value
$50
$25
Your Shares
200
400
Your Value
$10,000

6. Tracking Your Stock Investments
Monitor
Graph $ value on daily or weekly basis
Watch the financials
Evaluate current sales, profits, and projected
Track the products
Poor-quality or lack of new up-to-date can affect value of stock
Watch the economy
Inflation rate, overall economy
Be patient
Wait it out if the company is good

7. Section 9.2

8. Stock Classifications
Blue-chip stocks
Income stocks
Growth stocks
Cyclical stocks
Defensive stocks
Penny Stocks

9. Blue Chip Stocks Risk: Low Attracts: Conservative Investors
Description: Issued by large, stable companies with histories of uninterrupted dividend payments
Payout: Steady dividend income
Examples: General Electric, AT&T, Coca Cola

10. Income Stocks Risk: Low Attracts: Conservative investors
Description: Issued by large, stable companies
Payout: Steady, higher than average dividend income
Examples: General Motors, Microsoft, Cisco Systems

11. Growth Stocks Risk: High Attracts: Those willing to wait for payout
Description: Issued by young, growing companies, or those who have a history of being at the forefront of industry developments
Payout: Low/no dividends
Examples: Amazon, Facebook, Under Armour

12. Defensive Stocks Risk: Low
Attracts: Those wanting income when economy is bad
Description: Provides constant dividend and stable earnings, regardless of economy
Payout: Steady dividends
Examples: Kraft Heinz Co, Proctor and Gamble, Colgate Palmolive

13. Cyclical Stocks Risk: High
Attracts: Those wanting to buy low and sell high for capital gain, not dividends
Description: Dependent on health of the economy, losing substantial value during tough times
Payout: Good if timing is right
Examples: Whirlpool, Ford, airline companies

14. Penny Stocks Risk: High
Attracts: Those who aren’t afraid to lose money
Description: Stocks that sell for $5 or less
Payout: All or nothing
Examples: No companies that you would recognize

15. Factors that Influence the Price of Stock
Bull Market – Occurs when investors are optimistic about economy and buy stocks
Bear Market – Occurs when investors are pessimistic about the economy and sell stocks
Company’s profits, losses, and numerical measures of its financial situation

16. Numerical Meaures Current Yield Total Return Earnings Per Share
Price Earnings Ratio

17. Current Yield Will help you to determine the value of your investment
Example: Suppose that Tanika purchases stock in EatGrapes.com. Assume that EatGrapes.com pays an annual dividend of $1.20 and is currently selling for $24 a share. What is Tanika’s current yield?
Formula: Annual Dividend = Current Yield
Current Market Value
Solution: $1.20 = 0.05 = 5% or .05
$24.00

18. Total Return
Will let you know whether your investment is increasing or decreasing in value
Example: Two years ago Mark bought 40 shares of Ferguson’s Motor Company for $70 a share. The stock pays an annual dividend of $ Mark is going to sell his stock at the current price of $120 a share. What would be the total return on his investment?
Formula: Current Return + Capital Gain = Total Return
Current Return = Dividend * Number of Shares * Years Held
Capital Gain = (Selling Price per Share - Purchase Price per
share) * Number of Shares Held

19. Current Return + Capital Gain = Total Return
Current Return = Dividend * Number of Shares * Years Held
Capital Gain = (Selling Price per Share - Purchase Price per share) * Number of Shares Held
Current Return $1.50 * 40 * 2 + $120
Capital Gain ($120 - $70) * 40 = $2000
Total Return $120 + $2000 = $2,120

20. Earnings Per Share
Can help you find out a company's profits. This information can help you determine the general health of the company in which you are investing.
Example: EFG Corporation had net earnings of $800,000 last year. EFG had 100,000 outstanding shares of common stock. What were EFG’s earnings per share?
Formula: Net Earnings = Earnings Per Share
Common Stock Outstanding
Solution: $800,000 = $8
100,000

21. Price-Earnings Ratio
Most common measure of how expensive a stock is. Determining the price-earnings ratio can help you decide whether a stock is worth purchasing.
Example: EFG’s stock is selling for $96 a share. EFG’s earnings per share are $8. What is EFG’s price-earnings ratio?
Formula: Market Price Per Share = Price-Earnings Ratio Earnings Per Share
Solution: $96 = 12 $8

22. Section 9.3

23. Primary Markets Investors purchase new securities from a corporation
May buy through investment bank
May buy from representative of corporation
Initial Public Offering
When corporations sell to public for very first time
Considered high-risk investment – no stock history to look at

24. Secondary Markets
Market for existing securities being currently traded
Securities exchange - Marketplace where brokers who represent investors meet to buy and sell securities
NYSE is second largest in the world
Over-the-counter market
Network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
Most traded through NASDAQ

26. McDonalds
Video

27. Short Skirts and Stocks
Video