FrontPage: Turn in Savings Calculator webquest from yesterday if you did not do so. The Last Word: Ch 11 Review and Unit 4 Test - Tuesday Buying and Selling: Stocks and Bonds Chapter 11, Sections 3 and 4 A Stock Exchange A secondary market where securities (stocks and bonds) are bought and sold. Investors buy stock for two reasons: to earn dividend payments, to earn capital gains by selling stock at a price greater than the purchase price Stocks are riskier than other investments, but offer higher returns. Types of Stock common stock: gives shareholders voting rights and a share of profits preferred stock: gives shareholders a share of profits (paid before common stockholders), but no voting rights Stockbrokers An agent who is paid a commission for buying and selling securities on behalf of customers. Generally, brokers work for brokerage firms. The brokers primary job is to carry out the investors instructions to make trades. Trading Stocks The New York Stock Exchange (NYSE) is the oldest and largest in the U.S. It is located in New York City on Wall Street. Most large, successful US corporations list their stock with the NYSE. Trading Stocks OTCs The term over-the-counter (OTC) is used to describe the market for stocks that are not traded on a formal stock exchange. The NASDAQ is an electronic stock exchange that allows OTC traders around the world to make trades. Many companies listed with the NASDAQ are technology companies. **National Association of Securities Dealers Automated Quotations. Trading Stocks A future is a contract requiring someone to buy or sell a commodity at a specified future date and price. An option is similar, but gives the right, but not the obligation, to buy or sell. Trading Stocks There has been a huge growth in online brokerage firms (ex. Ameritrade). Online investors can now make trades at any time and generally pay lower commissions than those charged by traditional brokers. Computer technology matches buyers and sellers automatically, providing rapid trades at the best possible prices. Measuring How Stocks Perform A stock index measures and reports the change in prices of a set of stocks. The Dow Jones Industrial Average (DJIA) is a stock index that tracks the stocks of 30 of the largest companies traded on the NYSE. Other key US indexes: Standard & Poors 500 (S&P 500) NASDAQ Composite 30 Companies of the DJIA Measuring How Stocks Perform: Bulls and Bears When stock prices rise steadily over an extended period, the stock market is described as a bull market. When stock prices decline steadily over an extended period, the stock market is described as a bear market. FrontPage: When do you think is the best time to buy stocks? The Last Word: Ch 11 Review/Unit 4 Test Tuesday December. This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, October, August, and February. Mark Twain The Last Word: No homework FrontPage: NNIGN For each of the scenarios, tell whether you would invest or not, and why Scenarios Scenario #1 Dont invest!!! Its the crash of 1929! You lost 84% of your money If you saved you gained 5.4% in your trusty bank (get your money before your bank shuts down!!!!!) Scenario #2 Invest Invest Invest The market has bottomed out and begun to rise If you played it safe you lost out on a 155% increase on your investment earning only 1% with the bank. Scenario #3 Stocks are tough, who would of thought it would grow again! The market tripled in size, you earned 296% on your investment If you took the high road and kept your money in savings you earned a 20% increase. You can tell everyone about your 20% as they drive past you in their new Ferraris! Scenarios The Wonderful World of Bonds. James Bonds. A bond is a contract promising to repay borrowed money, plus interest, on a fixed schedule. The amount the bond issuer promises to pay the buyer at maturity is its par value. Maturity is the date when the bond is due to be repaid. The coupon rate is the interest rate a bondholder receives every year until maturity. Yield is the annual rate of return on a bond. Different Bonds There are different types of bondsbonds Treasury bonds help keep the federal govt. operating US Treasury bonds considered virtually risk-free There are different types of bonds Corporate bonds help businesses expand A junk bond is a high risk, high yield corporate bond. Municipal bonds make state and local projects possible Bonds - Risk The main risk that bond buyers face is that the issuer will default, or be unable to repay the borrowed money at maturity. Therefore, the level of risk is directly tied to the financial strength of the bond issuer. Other Financial Instruments - CDs Certificates of Deposit (CDs) are a form of time deposit offered by banks, S&Ls, and credit unions. Like bonds, CDs have a maturity date, when the investor receives the principal back with interest. Generally, longer maturity dates pay higher rates of interest.