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What is a Stock Market?
What is a Stock Market?
• Where do you go to buy CDs, jeans and books?– Just like a market for CDs, jeans and books,
there is a market for stocks
• People buy stocks to receive dividends and they anticipate increased stock price
What is a Stock Market?
• Firms sell stocks to receive financial capital to use to expand the business
• Sold through brokers–Person who acts as a go-between for buyers
and sellers of stocks and bonds.
• Stock market– Mechanism whereby people who
want to own shares of stock can buy from people who want to sell shares of stock
What is a Stock Market?
• Stockholder– People who have invested in a
corporation and own some of its stock.
• Asset– All items to which a business or
household holds legal claim.
What is a Stock Market?
What is a Stock Market?
• Capital Gain– Increase in value of an asset from
the time it was bought to the time it was sold.
• Capital Loss– Decrease in value of an asset
from the time it was bought to the time it was sold.
What is a Stock Market?
• Dividend– Portion of a corporation’s profits paid to its
stockholders.
What is a Stock Market?
• Common Stock– Shares of ownership in a corporation that give
stockholders voting rights and a portion of future profits.
What is a Stock Market?
• Preferred Stock– Shares of ownership in a corporation that give
stockholders a portion of future profits but no voting rights.
What is a Stock Market?
• 3 different stock markets– NYSE– AMEX– NASDAQ
What is a Stock Market?• New York Stock Exchange (NYSE)
– Founded in 1792– About 2,800 companies listed– Dow Jones and S&P 500– Listed companies must have at least
$100,000,000 in outstanding stock and trade an average of at least 100,000 shares per day
– 1,366 member seats
What is a Stock Market?• American Stock Exchange (AMEX)
– Founded after Civil War– More than 800 companies listed– Listed companies must have more than 500,000
shares outstanding and trade an average of more than 1,000 shares per day
– 807 member seats
What is a Stock Market?
• National Association of Securities Dealers Automated Quotations (NASDAQ)– Founded in 1971– More than 3,700 companies listed– Consider the home of tech stocks– No physical location; trades done via computer
network– Largest market in terms of stocks traded– No fixed number of seats
What is a Stock Market?• Dow Jones Industrial Average (DJIA)
• Standard and Poor’s 500 (S&P 500)
• Securities Exchange Commission (SEC)
• Regulatory agency of the stock market
• Bull/bull market
– A bull is an investor or analyst who believes that the price of a security or security prices in general will rise. A bull market is an extended period of rising prices for a security or the securities market in general.
What is a Stock Market?
What is a Stock Market?
• Bear/bear market
– A bear is an investor who believes that a security’s price or security prices in general will go down. A bear market is an extended period of price decline for a security or the securities market in general.
April 19, 2023 What Are Mutual Funds? 19
What Are Mutual Funds?
• A mutual fund is an investment company that pools the money of many individuals to buy stocks, bonds, or other investments.
• The investment club shares all profits and losses, thereby lowering overall risk to the investor.
April 19, 2023 What Are Mutual Funds? 20
Lesson 7 Visual 2Types of Mutual Funds
Low Risk and Low Potential
Reward
High Risk and High Potential Reward
Money-market funds (short-term securities)
Bond funds
(corporate or
longer- term government bonds)
Income funds (high- yield stocks and bonds)
Growth funds (larger company stocks long-term capital
gains)
Aggressive growth funds (smaller company stocks; short- and long- term capital gains)
April 19, 2023 What Are Mutual Funds? 21
Initial investment
CompanyPrice
per
Share
No. of Shares Owned
Amount Invested
Investment Value
1 Year Later
American Cellular $ 5 100 $ 500
Big Box Stores $ 20 50 $1,000
Biotech Industries $ 10 0 0
General Grocery $ 20 0 0
Giant Auto $ 10 100 $1,000
Gold Mining Group $ 5 100 $ 500
Total Investment Value
XXXX XXXX $3,000
April 19, 2023 What Are Mutual Funds? 22
CompanyPrice
per
Share
No. of Shares Owned
Amount Invested
Investment Value
1 Year Later
American Cellular $ 8 100 $ 500 $ 800
Big Box Stores $ 23 50 $1,000 $1,150
Biotech Industries $ 8 0 0 $ 0
General Grocery $ 22 0 0 $ 0
Giant Auto $ 11 100 $1,000 $1,100
Gold Mining Group $ 4 100 $ 500 $ 400
Total Investment Value XXXX XXXX $3,000 $3,450
One Year Later: An Example