1. 1.12.2.G1 Corporation Corporation: an institution granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. Securities: A document; historically, a physical certificate but increasingly electronic, showing that one owns a portion of a publicly-traded company or is owed a portion of a debt issue. Securities are tradable. At their most basic, securities refer to stocks and bonds. Capital: Money a business gets in order to operate. Equity Capital: Sale of stocks Debt Capital: Sale of bonds Public vs. Private Corporation H28

2. 1.12.2.G1 Stocks Prospectus: Information about financial statements: earnings, assets, liabilities, products, services, and management. Stock: Also known as an equity or a share is a portion of the ownership of a corporation and a claim on the company's earnings/assets Exchange: A place where stocks, bonds, or other securities are bought and sold by brokers H28 1.Create name & name board of directors 2.Articles of Incorporation & Write bylaws 3.Investment banker to buy their stock offering--IPO (initial public offering) 4.The investment banker sells the stock to the general public (secondary market) to make a profit.

3. 1.12.2.G1 Common Stock Shares or units of ownership in a public corporation –Most basic form of ownership –One vote per share owned to determine company’s B.O.D –Right to vote on major issues Preferred Stock Preferred stock – shares which pay fixed dividends and have priority –Less risk than common stock –No voting rights –More expensive –Dividends are stated as a percentage known as the par value

4. 1.12.2.G1 Stock s NYSE: Oldest/largest by vol. traded & mkt. cap. (2,800 Companies) Issued at least 1 million shares worth $100 million Earned >$10 million in last 3 years NASDAQ: Largest trading volume (over 2,900)- More volatile Issued 1.25 million shares worth $70 million Earned >$11 million in last 3 years OTC: Smaller companies & bonds Unable to meet exchange requirements Stock Exchanges A place where securities are bought & sold by professional stockbrokers Listing Requirements: Conditions imposed by a stock exchange upon companies that want to be listed on that exchange. (Min. # of shares, min. mkt. cap, & min. annual income

5. 1.12.2.G1 Stock s © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Index Funds & ETF’s Index Fund: Mutual fund based on an index: Dow Jones or S&P 500 Index fund Exchange-traded fund: A mutual fund that tracks an index, but is traded like a stock Stock Index An imaginary portfolio of securities representing a particular market or a portion of it. DJIA (The Dow Jones Industrial Average) – 30 Blue chip Wilshire 5000 (NYSE, NASDAQ, AMEX) NASDAQ Composite S&P 500

6. 1.12.2.G1 Stocks Companies like to issue because there is no obligation to pay investors back. Capital Gain/Loss: Difference between the purchase price & selling price when an investor buys a security and sells it later. Dividends: Portion of the profits paid to the shareholders of a company. Decided by board of directors & not required. © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7. 1.12.2.G1 What makes them move? Company profit: Long term stocks grow w/ profit Interest Rates: Higher rates = better returns on Bonds/Cds Economy: How strong/weak the economy Management: Company managers and CEOs Industry: The other companies and markets Technology: How technology is changing industries and consumers T009-02.06 H22 Make stock price go up: Strong economic growth Low interest rates Low inflation Strong industry conditions Proper decisions by firm Make stock price go down: Weak economy High interest rates High inflation Weak industry conditions Improper decisions made by the firm

8. 1.12.2.G1 Stock Classifications A variety of type of stocks are necessary for a diversified portfolio Seven basic classifications - Growth- Countercyclical - Income- Blue Chip - Value- Speculative - Cyclical © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

9. 1.12.2.G1 Growth Stock Growth stocks: consistent record of relatively rapid growth and earnings in all economic conditions –New companies expending product lines –P/E ratio of 15-25 –Beta is 1.5 or higher –Examples include Coca-Cola and Wal-Mart © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

10. 1.12.2.G1 Income Stock Income stocks pay higher than average dividends –Company retains small portion of profits –Steady stream of income such as utility companies –Beta is less than 1.0 –Dividend Yield over 5% & predictable © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

11. 1.12.2.G1 Value Stock Value stocks have a low market price considering historical earning records and value of assets –Viewed as investment bargains –Previous examples are Time Warner and IBM –AKA Defensive Stock © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

12. 1.12.2.G1 Cyclical Stock Cyclical stocks are influenced by changes in the economic business cycle –Companies which operate in major consumer dependent industries Automobiles, housing, airlines (Ford) –Beta is generally 1.0 –Reflects state of economy © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

13. 1.12.2.G1 Countercyclical Stock Countercyclical stocks: consistent returns even when the economy is suffering –Products are always in demand –Good for investors who want dividends –Examples are utility companies and grocery stores –Beta is 1.0 or below, even negative © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

14. 1.12.2.G1 Speculative Stock Speculative stocks are companies with potential for substantial earnings –Very high risk stocks –Examples include internet and video game companies –Beta is 2.0 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

15. 1.12.2.G1 Blue-chip Stock Blue-chip stocks: long records of profit, dividend payments, and a good reputation for management –Less risky –Grow at a consistent rate –Examples are McDonalds, Wal-Mart and General Electric © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

16. 1.12.2.G1 Reading Stock Quotes © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

17. 1.12.2.G1 Year to Date Percent Change YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Year to date percent change is the stock price percent change from January 1 st of the current year –If a stock was $43.00 on January 1 st and $36.00 on July 30 th,, the percentage change would be -16.3%

18. 1.12.2.G1 52-Week High Low YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 52-Week High & Low shows the highest and lowest prices the stock was sold per share during the last 52 weeks

19. 1.12.2.G1 Stock Name YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Stock – Each company’s stock is provided with an abbreviated trading symbol name

20. 1.12.2.G1 Dividends per share YTD % 52-Week High Low StockDivYLD % EPSP/EVol 100s CloseNet Chg -16.34336AAR.332.522147942.02 7 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Dividends per share is the total cash paid to common stockholders per share annually –Helpful when determining the type of stock –If a company paid $10,000 in dividends for 30,000 shares, the dividends per share would be $0.33

21. 1.12.2.G1 Earnings per share YTD % 52-Week High Low StockDivYLD % EPSP/EVol 100s CloseNet Chg -16.34336AAR.332.522147942.02 7 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Dividends per share is the total cash paid to common stockholders per share annually –Helpful when determining the type of stock –If a company paid $10,000 in dividends for 30,000 shares, the dividends per share would be $0.33

22. 1.12.2.G1 Earnings per Share How much income a company has available to pay in dividends and reinvest as retained earnings on a per share basis After tax annual earnings = Earnings per share Total number of shares of common stock –Information can be found in the business section of many newspapers –Indicates how well a company is doing (the quality of products, customer service, and operations management) © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

23. 1.12.2.G1 Dividend Yield Percentage © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Dividend yield percentage is the dividend expressed as a percentage of the price of the share –If a company paid $1.25 in dividends for a stock with a market price of $50.00, the dividend yield percentage would be 2.5% (1.25/50) –Helpful to know how much income to expect. A company paying high dividends is not reinvesting money to grow. YTD % 52-Week High Low StockDivYLD % EPSP/EVol 100s CloseNet Chg -16.34336AAR.332.522147942.02 7

24. 1.12.2.G1 Price/Earnings Ratio YTD % 52-Week High Low StockDivYLD % EPSP/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Price/earnings ratio is the closing price of the share compared to the annual earnings per share –If the stock’s market price is $50.00 and the earnings per share is $2.25, the P/E ratio is 22.2 For every dollar the company earns, the stock’s market price is worth $22.00 –A high number indicates people are optimistic about the company and health of the market.

25. 1.12.2.G1 Price/Earnings Ratio Price/earnings ratio is the relationship between the price of one share of stock and the annual earnings of the company (P/E ratio) Price per share = P/E ratio Earnings per share of stock –Information can be found in a newspaper –Most widely used critical measure of a stock’s price –Represents how much an investor is willing to pay for each dollar of a company’s earnings © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

26. 1.12.2.G1 P/E Ratio Continued –Most companies have between a 5-25 P/E ratio 7-10 P/E ratios are financially successful companies 15-25 P/E ratios are rapidly growing companies 40-50 P/E ratios are speculative companies –Lower P/E stocks pay higher dividends and have less risk, lower prices, and slow growth –High P/E ratios indicate the firm is expected to have a lot of growth in the future © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

27. 1.12.2.G1 Volume YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Vol 100’s is the number of transactions to the share on the reported day –Represented in hundreds (take the number and add two zeros)

28. 1.12.2.G1 High and Low YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona High and low entries represent the high and low selling price of one share for the previous day

29. 1.12.2.G1 Close YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Close is the price of the last share sold for the day

30. 1.12.2.G1 Net Change YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighCloseNet Chg -16.34336AAR.332.52214794042.027 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Net change is the difference between the closing price of the share from the prior day and the current day

31. 1.12.2.G1 Ups and Downs The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned

32. 1.12.2.G1 Book Value Book value is the net worth of a company Assets-Liabilities = Book value –Information can be found in the company’s annual report –Indicates what would happen if a company’s assets were sold, debts paid, and proceeds distributed to stockholders © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

33. 1.12.2.G1 Beta Beta measures a stocks volatility compared to overall changes in the stock market –If a stock has a beta of +1.5 and the market went up 10%, the value of the stock is expected to rise 15% –Average beta is between +0.5 - +2.0 –A higher beta indicates more risk because the stock price change will be more drastic © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

34. 1.12.2.G1 Stock Split © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Shares Issued: Value: Your Shares: Your Value: 2 For 1 Split BeforeAfter 10,00020,000 $50/share$25/share 200 shares400 shares$10,000 Types of Orders Market Order: Auction, buy or sell at current value Limit Order: Buy or sell at a specific price

35. 1.12.2.G1 Things to remember… 1.High P/E ratio indicates that the stock is expensive to invest 2.If the stock price is close to the 53 week high, you may want to hold off 3.High dividend=profit 4.You want your closing price and dividend to be close when looking at yield % 5.Yield refers to the return to investors 6.Stocks are fairly priced if the PE ratio & EPS are equal 7.Profits are recorded as earnings

36. 1.12.2.G1 Business and Personal Finance Unit 3 Chapter 9 © 2007 Glencoe/McGraw-Hill