1. Stock Exchanges 9.3 New York Stock Exchange (NYSE)—The largest stock exchange in the U.S. and began in 1792 on Wall Street in New York City. –3,000 companies trade stock on NYSE American Stock Exchange (AMEX) Over-the Counter-Market (OTC)-Smaller companies trade on the OTC. –Also called the NASDAQ

2. How Stocks are Traded 9.3 Brokers– (Stockbrokers)-Link buyers and sellers together and buy and sell stocks for individuals and companies. Investment Banks—Banks that buy and sell large blocks of stock for companies. –Investment banks collect a commission on the stock sales.

3. Determinants of Stock Prices 9.3 Bid Prices—A buyer “bids” a price for a stock. Ask Prices—A seller “asks” a price for a stock. Ex. Bid price of $45.00 share Ask price of $46.00 per share Execution price could be $45.50 share

4. Stock Prices 9.3 Corporate Finances—Profits and losses affect stock prices. –Companies issue quarterly reports –What are the long term prospects for the company?  Investor Expectations—If positive, then stock prices go up; if negative, then stock prices go down.

5. Stock Prices 9.3 Bull Market—When the Stock Market steadily rises over a period of time. Bear Market—When the Stock Market falls steadily over a period of time. –Bull market—more buyers than sellers –Bear market—more sellers than buyers

6. Stock Prices 9.3 External Forces—Sometimes forces over which neither the stock market or companies have no control over can make the market go down. –Ex. Tylenol (Johnson & Johnson) in 1982—Someone put poison in some Tylenol capsules and some people died.

7. Why Buy Bonds 9.3 Yields—Interest on money owed to a bondholder. –Generally lower than stock dividends because the risk is lower than stocks. Corporate Bonds—Companies sell bonds to raise large sums of money that might be difficult to get from banks. Come in units of $1,000, $5,000, $10,000

8. Bonds 9.3 Government Bonds—Are sold to investors by the government to investors with a promise to repay at a set amount of interest. –They are very safe; guaranteed by the govt. –Redeemable up to 30 years after purchase.

9. Why Buy Futures? 9.3 Futures—Include agricultural products like corn, wheat, soybeans, oats. Also, includes gold, silver, diamonds. Very risky— Traders sell “futures”by promising to deliver goods at a later date for a set price.

10. Regulation of Securities Industry Federal Securities Act of 1933—All companies must register with the Federal Trade Commission (FTC). Securities and Exchange Commission (SEC)—Enforces rules for trading of stocks and bonds. Prospectus—A fact sheet about a companies finances used by investors to evaluate a companies financial health.

11. Stocks, Bonds, Futures 9.3 Why Buy Stocks? –Gain a profit –Limit the risk on your investment –Become a part owner of a corporation

12. Why Buy Stocks? 9.3 Make a profit in two ways: –1. Receive regular dividends on money invested in stocks. (Income stocks). Growth stocks—Do not pay dividends but focus on rapid growth of the company 2. Sell at a higher price than the original purchase price. (Buy low/Sell high)

13. Profit Potential for Stocks 9.3 Capital Gain—Difference between the higher selling price and the lower original purchase price –Buy at $20/Sell at $25 = $5 capital gain  Capital Loss —Investor who sells a stock at a price lower than the purchase price.  Buy at $25/Sell at $22 = $3 capital loss

14. Why Buy Stocks? 9.3 Limited Risk—Stockholder’s losses are limited to the amount of money that is invested in the stocks that they own— no more. Ownership—Can vote to elect board of directors as well as decide on other company issues. –1 Vote for each share of stock owned.

15. Stocks 9.3 Stock Split—Shareholders must approve; Ex. 2 for 1 split. –You own 10 shares @ $150 each –After split—You own 20 shares @ $75 ea. –The total investment is the same before and after the split!

16. 401-K Plan Questions (Answer)  List some reasons why 401K plans are popular with employees.  What is the maximum amount $ that an employee can contribute to his/her 401K account in 2007? 2008?  What is the penalty for withdrawing $ prior to age 59 ½? Are there exceptions for early withdrawal of $?  Do employers have to contribute to employee 401K plans?  Write/Type ½ page paper about 401-K plans?