1. What is a Stock?

2. How Does a Stock Become a Stock? Imagine a company called Joe’s Coffee, whose coffee chain is expanding at an alarming rate. To meet demand, the company needs to order new coffee beans, build new stores, and hire new employees. But it doesn’t have much cash!

3. Joe’s Coffee has some options at this point… Borrow from a Bank Issue Bonds Private Investors “Go Public” and issue shares of stock!

4. To Go Public… Joe’s Coffee will need to hire an investment banking firm to underwrite the stock offering. The bankers study the business and estimate its value. In this case the bankers estimate that Joe’s Coffee is worth $15 million.

5. Issuing Stock Joe’s Coffee decides to issue 1 million shares of stock prices at $15 per share. Number of Shares x Price Per Share 1,000,000 x $15 = $15,000,000 Joe’s Coffee takes this money to expand its business!

6. What is a Stock? Each share of stock represents ownership in a company. Each shareholder participates in the success of a company. Each shareholder is allowed one vote per share.

7. Joe’s Coffee Stock Each share of Joe’s Coffee Stock represents a millionth of a share of ownership. Each share of Joe’s Coffee Stock is entitled to a millionth of the company’s profits If you owned 10,000 shares of Joe’s Coffee, you would own 1% of the company! 10,000/1,000,000 If you owned 200,000 shares of Joe’s Coffee, you would own 20% of the company 200,000/1,000,000

8. Earnings Per Share In 2008, Joe’s Coffee made $3,000,000 after paying all expenses. Remember, there are 1,000,000 shares issued! Each Share of Joe’s Coffee Stock earned $3,000,000/1,000,000= $3.00 per share

9. Dividends or Growth? Joe’s Coffee may decide to pay out part of their earnings to shareholders in the form of dividends. Or, Joe’s Coffee may decide to keep the earnings and reinvest them into the business DividendGrowth Bank- Wells Fargo Oil Company- Exxon Mobile Coffee Companies- Starbucks Technology- Microsoft

10. Example of Dividend You own 100 shares of Nokia Stock. Because Nokia has done well this past quarter, the corporation decides to pay a dividend of $2.25 per share. Therefore, Nokia would cut you a check for $________ (100 * $2.25). $225.00

11. Example of Growth You bought 20 shares of QualComm Stock on September 1 for $60.00/share. One year later, QualComm shares are worth $70.00/share. Therefore, your stock has made a capital gain of $10.00/share (which is $________ capital gain). Also Known as Capital Appreciation $200

12. Board of Directors A group of people elected by stockholders to guide the corporation and to make the major in the corporation. These people typically own large amounts of stock to ensure they are looking out for shareholders’ best interests! –When workers hold no interest in the company, it’s called an “Agency Problem.” Decisions

13. Blue Chip Stocks Blue Chip Stocks: Stocks of large, well- established corporations with a ______________ record of profitability. Many have been around for decades, such as IBM and Coca-Cola. solid

14. Dividends Dividends: An amount of money per share that the Board of Directors decides to be given back to the shareholder when the ____________________ earnings are good! (*optional) quarterly

15. What Makes the Prices of Stocks Fluctuate? Several factors may occur that make the share price of stock go up and down daily. Some of these factors include: general consumer optimism or _______________ in the market, a new product dispersed by a company, a failed product by a company, a strong or weak __________________ report on net income of a business, and unethical business behavior that leads to _______________ allegations (such as Enron). Pessimism Quarterly criminal

16. THE SECURITIES MARKET A securities market is a place where brokers who are representing investors meet to _________ and __________ securities. The largest organized exchange in the US is the N______ Y_______ S___________ E______________ (NYSE). The size of the NYSE is about two-thirds the size of a football field. Floor brokers buy and sell the stocks on the exchange; only brokers who are members of the exchange may do business there. Therefore, you personally couldn’t buy a stock here, but you can have a stockbroker who is part of an exchange company buy it for you. Buy Sell ework tockxchange

17. The smaller Am_____________ ___________ Ex______________ (AMEX) is also in New York City. Regional exchanges are located throughout the country. To have a stock listed with the NYSE or AMEX, a company must meet a minimum number of market-value requirements. Securities listed with the NYSE are traded only during official trading hours which are from ________ a.m.- ________ p.m. (New York time), Monday through Friday (except holidays). erican change Stock 9:30 4:00

18. Bear vs. Bull Market BEAR MARKET A prolonged period of ________________ stock prices and a general feeling of investor pessimism. It develops when investors become ____________________ about the overall economy and start to ________ their shares of stocks. falling sell negative

19. Bear vs. Bull Market Bull Market A prolonged period of _______________ stock prices and a general feeling of investor optimism. ________________ about how the country is doing also serves to drive up stock prices. rising Confidence

20. STOCK SPLIT An increase in the number of ___________________ shares (number of shares that a company is able to have available for investors) of a company’s stock. When a company increases its shares outstanding, it _______________ the selling price in direct proportion. For example, if there were 1,000 shares outstanding with a market value of $60, then a 2:1 (two for one) stock split would result in 2,000 shares outstanding selling for $30. You still have $________ market value. outstanding lowers 60,000

21. Joe’s Coffee Stock Split Joe’s Coffee decides to split their stock 2 for 1 (2:1). Before the Split There were 1,000,000 shares at $15 per share. $15,000,000 After the Split There are 2,000,000 shares at $7.50 per share. $15,000,000 Note that both before and after the split, the company is valued at $15,000,000. The split does not affect the total value of the company!!!

22. Stock Indexes A benchmark that investors use to judge the ___________________ of their investments. The most widely followed stock index is the ___________________ Industrial Average. The _______ is an average of the price movements of _____ major stocks listed on the New York Stock Exchange. This average provides a general overview of what stock prices are doing in the stock market as a whole. Investors compare the price fluctuations of their stocks against this average to judge how well their stocks are performing ________________ to the overall stock market. Other commonly used indexes are the Standard & Poor’s ______ and the NASDAQ Composite Index which involves the newest and fastest growing stock market in the U.S. performance Dow Jones index 30 compared 500

23. Dow Challenge You have 1 minute to write down as many of the 30 Dow Jones companies that you can think of!!! 3M Alcoa American Express AT&T Bank of America Boeing Caterpillar Chevron Citi Coca-Cola DuPont Exxon Mobile General Electric General Motors Home Depot Hewlett-Packard Intel IBM JP Morgan Johnson & Johnson Kraft McDonalds Merck Microsoft Pfizer Proctor & Gamble United Technologies Verizon Wal-Mart Walt Disney

24. How to Invest 1.___________________ Advisers – Stockbrokers, personal advisers, etc. 2.__________________ Investing – Internet Trading including E*Trade, AmeriTrade, etc. Financial Self

25. Investing Tips 1. Buy Quality 2. Hold for the Long Term 3. Diversify An investment strategy designed to reduce risk by combining a variety of investments.