Pg 447-454 Investing Pg 447-454 Investing in Stocksin Stocks

Investing in StocksInvesting in Stocks

1. How is investing in stocks different than investing in bonds?

◦ Bond investors lend money to a corporation◦ Stock holders (share holders) are part

owners of a company

2. Shareholders share both the _risk__ and _rewards_ of a company.

3. What are two reasons why companies sell shares?◦To raise money to become established or to expand and grown

4. If a business is profitable part of the profits may be divided and paid to the shareholders in the form of dividends.

5. What are stock prices influenced by? ◦They are influenced by supply and demand.

6. What is a bull market?◦It is when the prices of most stocks are high.

(high demand)

7. What is a bear market?◦When the prices fall on stocks. (more investors

want to sell stocks than buy them)

8. What does the stock price reflect?◦The investor’s overall opinion of the company’s prospects.

9. What influences this opinion?◦It is influenced by earnings and growth prospects, news of new products or planned services, and the general state of the company.

Common StockCommon Stock

10. What do holders of common shares have the right to do?◦Common shareholders have the right to attend

the company’s annual meeting and to vote on company matters

11. When can common shareholders share in the profits?◦After bondholders and preferred shareholders are paid

12. Are dividends likely in a bear market?◦No, they are unlikely

Preferred StockPreferred Stock

13. What is the main advantage of preferred stock over common stock?◦They are paid first if the company makes a

profit

14. Do preferred shareholders have voting rights within the corporation?◦Usually they don’t have voting rights.

15. What are Blue-Chip companies?◦They are companies that have long records of regular dividend payments, stable growth patterns, and active trading of their shares.

16. Are growth companies more or less risky than Blue-Chip companies? What do growth companies tend to do with their profits?◦Growth companies are more risky than Blue-

Chip companies. Growth companies reinvest their profits instead of paying shareholder dividends.

The Stock ExchangeThe Stock Exchange

17. Who helps investors to buy and sell stocks?◦Stockbrokers or online services – through the

stock exchange

18. How many shares are traded daily at the TSX?◦About $5 billion dollars in shares are traded each

day

19. Name three other stock exchanges in the world?◦NYSE, NASDAQ and EASDAQ

20. What might eventually happen to the TSX?◦They could quickly become outdated and be

forced to merge with another large exchange

Buying and Selling StocksBuying and Selling Stocks

21. What do stockbrokers do and how do they make money?◦They advise buyers on which stocks to buy

and sell, and when to do it. They charge a fee, or commission, which pays for their salary and for the services their firm provides.

22. What are two advantages of online investing?◦It is less expensive and more convenient.

23. What are three things you can research in a company to help you decide if you want to buy shares in that company?◦The company’s annual reports, financial statements, and company news.

Stock QuotationsStock Quotations

24. What two prices make up a stock quotation? Explain what each is.◦The bid price, which is the highest price anyone is willing to pay, and the ask price, which is the lowest the investor is willing to accept for the stock.

25. Where can you find the current prices of the most common and popular stocks?◦In most daily newspapers and online