8.01-B Summarize type of stock
and bond (securities) investing
Securities and Exchange
Commission Building in New York
Investing in Bonds
• Bonds (loans to
– Promise to pay a
definite amount of
money at a stated
interest rate on a
specified maturity date.
– Individual who lends
money to a corporation
• Bonds are purchased at a coupon rate, redeemed at
the face value on the maturity date.
• Face Value
– Amount being borrowed by the seller of the bond.
• Coupon Rate (rate of discount at time of purchase)
– Indicates rate of interest on the bond.
• Maturity Date
– Date the bond face amount will be paid to bondholder
• Example: Tom buys a $1000 bond on May 2,
2008. The purchase price is $750. The bond
matures on May 1, 2011.
Types of Bonds
• Corporate Bonds
– Issued by corporations
– Used to finance buildings,
• Federal Government
– T-bills, T-bonds, T-notes,
• Municipal Bonds
– Issued by local and state
– Used to finance schools,
roads, airports, etc.
• Treasury Bonds - aka Savings or Federal Bonds
– Issued by federal government
– Series EE Savings Bonds
• Cost half the face value
• After a specified number of years (maturity date) the bond
becomes worth the face value.
– Treasury Bills (T-bills)
• Issued for three months to one year
– Treasury Notes
• Issued for two to ten years
– Treasury Bonds
• Issued for ten or more years
• What type kind of bond would be issued by:
– IBM for expansion?
– City of Concord for a new airport?
– State of North Carolina for Highway 49?
– Wells Fargo Inc. to buy out Wachovia?
– US government to fund budget deficit?
– Cabarrus County for a new school building?
• Securities- Stocks and Bonds
– Share of ownership in a business
– Individual who owns shares of stock in a corporation
• Stock Certificate
– Proof of ownership in a corporation
• Market Value
– Price at which a stock can be bought or sold on the free market
– Part of profits shared with stockholders.
• Sam is a shareholder in IBM. IBM shares
the money it makes with its shareholders
each quarter. What is the distribution to
– Discount Rate
Types of Stocks
• Common Stock
All corporations must issue
General ownership in a corporation and a right to share in the
+Right to vote at shareholder meetings
• One vote per share
• Preferred Stock
optional issue by corporation
+Priority over common stockholders in the payment of
• Guaranteed dividends or
• Distribution of assets if corporations dissolves/files bankruptcy
– No voting rights
Securities (Stocks and Bonds) should be long term investments,
building for your future.
• Broker –Sells/Buys stocks for consumers
– Person who acts as an agent (go between) for
buyers and sellers of securities. (review: agent
– Fee charged by a brokerage firm for the buying
and/or selling of a security.
• Marketplace where brokers who represent
investors meet to buy and sell securities.
– NYSE – New York Stock Exchange
*In US Most widely used, most stocks, most volume
– NASDAQ – Stock Dealers Association
– AMEX – American Exchange
– Over the Counter - OTC
– Exchanges in San Francisco, Boston, Chicago
– International Exchanges in Europe, Asia
• Nikkei Exchange-Japan, London Exchange-England
Types of Markets
• Bull Market
– Occurs when investors are optimistic
about the economy
• Bear Market
– Occurs when investors are pessimistic about
• Which market do we currently have?
Numerical Measures for a
• Current Yield
– Annual dividend divided by current market
– Return on Investment (ROI)
• Price/Earnings Ratio (P/E)
– Price of one share of stock divided by the
earnings per share.
Selling a Stock
• Total Return
– Calculation that includes the annual dividend as well as
any increase or decrease in the original purchase price
of the investment.
• Capital Gains
– Profit from the sale of an asset such as stocks, bonds, or
real estate. Taxed as income by IRS.
• Capital Loss
– Sale of an investment for less than its purchase price.
Subtract up to $3,000 in losses from your income.
Capital Gain or Loss?
• Edward bought IBM stock in 1999 for
$54.00 per share. He sold in 2007 for
$88.00 per share.
• Is this a capital gain or loss for Edward?
• What $ amount per share?