BELL RINGER 04.16.2015Write complete question and answer on your Bell Ringer form.

Which makes a more attractive investment to you, stocks or bonds? Explain your answer.

ECONOMICSApril 16, 2015

Chapter 11: Financial MarketsSection 11.3: The Stock Market

BUYING STOCK

Buying stock in a company gives you a share of that company, share of ownership (equity) and profits.

As a stockholder, you are entitled to dividends (part of the profits) from the company.

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BUYING STOCK

When you sell stock for a profit, that profit is called a capital gain. When stock is sold at a loss it is a capital loss.

So, we can also infer that stock can be viewed as capital.

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BUYING STOCK

Stocks may be classified by whether or not they pay dividends:

Income stock pays dividends, usually quarterly.Growth stock gains in value by the company reinvesting the profits into the growth of the company.

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BUYING STOCK

Stocks can also be classified by whether the stockholder has a vote in company actions:

Common stock is those shares which give the holder a vote in certain corporate business.Preferred stock does not carry a vote, but gives its holders “first payout” (dividends, returns).

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BUYING STOCK

Risks involved in buying stock are:Value of stock can go up or down based on immediate company performance.In a company bankruptcy, bondholders are paid before stockholders.

Remember, higher return = higher risk.

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TRADING STOCK

Usually, folks like us will buy stock through a stockbroker, either directly or online.

Stockbrokers work for a brokerage. Brokerages either charge a commission or deal in stock for a profit.

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TRADING STOCK

Stocks are traded on a stock exchange as secondary markets.

Major US stock exchanges include the NYSE and NASDAQ.

Stocks’ performance is tracked by the Down Jones Index and/or the S&P 500 index.

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TRADING STOCK

The New York Stock Exchange (NYSE):

Began in 1792

Limited number of “seats,” or members who can participate

Includes only the largest companies

“Blue chip” stocks are those in high demand

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TRADING STOCK

The OTC (Over The Counter) market includes any and all companies, and purchases can be made directly from dealers or through brokers.

NASDAQ (National Association of Securities Dealers Automated Quotations) is the stock exchange that deals in OTC stocks, and sends information via computers.

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TRADING STOCK

Futures are commodities that are sold on contract at a specific date in the future.

Options are contracts that give investors the choice to buy or sell assets based on price and limited by a specific length of time.

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TRADING STOCK

An option to buy stocks at a specified time in the future is a call option.

An option to sell stocks at a specified time in the future is a put option.

Daytrading is the practice of buying and sell the same stock during the period of one day in an effort to profit off the day’s fluctuation in the market.

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CHECK QUESTION 11.3.1Write complete question and answer on your Bell Ringer form.

Describe the differences between the two main US stock exchanges.

BELL RINGER 04.20.2015Write complete question and answer on your Bell Ringer form.

Which group rates companies based on financial reliability and keeps track of stock performance?

MEASURING STOCK PERFORMANCE

The stock market is described in terms of “bear” (stocks are steadily declining) or “bull” (stocks are steadily rising).

The Dow Jones Industrial Average (The Dow) was established in 1896 and has tracked the performance of certain stocks (only 30 companies) that represent the overall stock market.

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MEASURING STOCK PERFORMANCE

The S & P 500 (Standard and Poor’s 500) tracks the stocks of 500 different companies as a measure of overall stock performance.

The S & P 500 includes mainly companies listed on the NYSE but also some from the NASDAQ and OTC markets.

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GREAT CRASH OF 1929

Prior to the Great Crash, the stock market had grown by more than 300% in the previous 4 years.

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GREAT CRASH OF 1929

Signs of trouble that were overlooked include:

Much of nation’s wealth held by very small number of companies and individuals.

Personal debt skyrocketed.

Industry was producing more goods than consumers could buy.

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GREAT CRASH OF 1929

Signs of trouble that were overlooked include:

Investors were creating huge debts trying to play the stock market (speculation).

The practice of buying on margin escalated the debt when companies collapsed.

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GREAT CRASH OF 1929

The peak of rising stock prices was reached on September 3, 1929.

As stock prices began to drop, some brokers demanded payment on loans.

More investors were forced to sell stocks, which drove prices down further.

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GREAT CRASH OF 1929

In the Crash of 1929, about 4 million people lost their money in the stock market.

A second crash occurred on “Black Monday,” October 18, 1987, where the Dow lost 22% of its value (twice what was lost in the “Great Crash”).

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GREAT CRASH OF 1929

A third large drop happened after September 11, 2001.

In each instance after the Great Crash, policies put into place because of the Great Crash helped keep the economy from going into a depression.

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