1. 8.01-B Summarize type of stock and bond (securities) investing Securities and Exchange Commission Building in New York

2. Investing in Bonds Bonds (loans to corporation or government) –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

3. Bond Terms Bonds are purchased at a coupon rate, redeemed at the face value on the maturity date. Face Value –Amount being borrowed by the seller of the bond. Coupon Rate (rate of discount at time of purchase) –Indicates rate of interest on the bond. Maturity Date –Date the bond face amount will be paid to bondholder Example: Tom buys a $1000 bond on May 2, 2008. The purchase price is $750. The bond matures on May 1, 2011.

4. Types of Bonds Corporate Bonds –Issued by corporations –Used to finance buildings, equipment, expansion. Federal Government –T-bills, T-bonds, T-notes, Savings bonds Municipal Bonds –Issued by local and state governments. –Used to finance schools, roads, airports, etc. H20

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

6. Bond Issues What type kind of bond would be issued by: –IBM for expansion? –City of Concord for a new airport? –State of North Carolina for Highway 49? –Wells Fargo Inc. to buy out Wachovia? –US government to fund budget deficit? –Cabarrus County for a new school building?

7. Stocks Terms Securities- Stocks and Bonds Stock –Share of ownership in a business Stockholder/shareholder –Individual who owns shares of stock in a corporation Stock Certificate –Proof of ownership in a corporation Market Value –Price at which a stock can be bought or sold on the free market Dividends –Part of profits shared with stockholders. H22

8. Shareholders/Stockholders Sam is a shareholder in IBM. IBM shares the money it makes with its shareholders each quarter. What is the distribution to Sam called? –Profit –Loss –Dividend –Discount Rate

9. Types of Stocks Common Stock All corporations must issue 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 Preferred Stock optional issue by corporation +Priority over common stockholders in the payment of Guaranteed dividends or Distribution of assets if corporations dissolves/files bankruptcy –No voting rights Securities (Stocks and Bonds) should be long term investments, building for your future. H23

10. Brokerage Firm Broker –Sells/Buys stocks for consumers –Person who acts as an agent (go between) for buyers and sellers of securities. (review: agent concept) Commission –Fee charged by a brokerage firm for the buying and/or selling of a security. H28

11. Stock Exchanges Marketplace where brokers who represent investors meet to buy and sell securities. Examples: –NYSE – New York Stock Exchange *In US Most widely used, most stocks, most volume –NASDAQ – Stock Dealers Association –AMEX – American Exchange –Over the Counter - OTC –Exchanges in San Francisco, Boston, Chicago –International Exchanges in Europe, Asia Nikkei Exchange-Japan, London Exchange-England H29

12. Types of Markets Bull Market –Occurs when investors are optimistic about the economy Bear Market –Occurs when investors are pessimistic about the economy Which market do we currently have? http://www.nyse.com

13. Numerical Measures for a Corporation Current Yield –Annual dividend divided by current market value. –Return on Investment (ROI) Price/Earnings Ratio (P/E) –Price of one share of stock divided by the earnings per share. T009-02.15 H31

14. 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 by IRS. Capital Loss –Sale of an investment for less than its purchase price. Subtract up to $3,000 in losses from your income. T009-02.16 H32

15. Capital Gain or Loss? Edward bought IBM stock in 1999 for $54.00 per share. He sold in 2007 for $88.00 per share. Is this a capital gain or loss for Edward? What $ amount per share?