stocks and stock markets

Stocks and Stock Markets

The Stock Market

Why would a business/corporation want to sell stock?

To raise capital to invest in company growth

Example: A Donut Business

Kroger wants you to supply 10 of their stores with your donuts.

One Donut Store

A bigger donut fryerA bigger sugar machineTwo delivery trucksStorage space for suppliesMore floor space for the new equipment5 new employees

You need:

You need $500,000 to expand.You have $100,000 available to invest.What are your options for coming up with the

other $400,000?PartnershipBank loanSell stock to investors

Initial Public Offering - IPOGo through an investment bank/broker who

will sell the shares to the public

How does a company go from private to public ownership?

What is stock?

What can a majority owner do?

Has control to run the company his/her way.

Owns more than 50% of the stock.

What are the two types of stock?

Common and Preferred

What are the advantages of owning common stock?

What are the advantages of owning preferred stock?

Donut shop makes $50K a year with 10,000 shares.

If the shop pays all its profits in dividends, the dividend is $5 per share.

What are dividends?

1. Make a profit 2. Receive a dividend

Why do people purchase stock?

The opinion of buyers regarding the financial future of the company

What determines a stock’s price?

(reflect the reasons people purchase stock)

Growth (stock price increases-short term profit)

Quality of projected dividend payments (long term stream of income)

Two Types of Stock Investments

A place for buying and selling stocks

Is it a real place?

Yes and no, some stock exchanges are virtual or electronic.

What is a stock EXCHANGE?

How do the laws of supply and demand apply to the prices of stocks in a stock market?

What might motivate a buyer to pay a higher price for a company’s stock?

Ex. Why pay more for Exxon than McDonalds?

Quality: long term health of the company, expected earnings & dividends, etc

What are the major stock exchanges?

NYSENASDAQAMEXHow are they different from each other?

New York Stock Exchange

What are stock indices?Stocks grouped by some category

What do they tell you?Price trends in specific industries

What are the major indices?Dow Jones Industrial Average(30 select industrial stocks)

Standard and Poor’s 600 (S&P 500)(500 general stocks)

What is a composite index?NASDAQ CompositeNYSE Compositeby industry

What might an energy index show?