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 corporation or government) – Promise to pay a definite amount of money at a stated interest rate on a specified maturity date. • Bondholder – Individual who lends money to a corporation Bond Terms • 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, equipment, expansion. • Federal Government – T-bills, T-bonds, T-notes, Savings bonds • Municipal Bonds – Issued by local and state governments. – Used to finance schools, roads, airports, etc. H20 Federal Bonds • Treasury Bonds - aka Savings or Federal Bonds – Issued by federal government • Types: – 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 H21 Bond Issues • 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? Stocks Terms • Securities- Stocks and Bonds • Stock – Share of ownership in a business • Stockholder/shareholder – 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 • Dividends – Part of profits shared with stockholders. H22 Shareholders/Stockholders • Sam is a shareholder in IBM. IBM shares the money it makes with its shareholders each quarter. What is the distribution to Sam called? – Profit – Loss – Dividend – Discount Rate Types of Stocks • Common Stock All corporations must issue General ownership in a corporation and a right to share in the corporation’s profits +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. H23 Brokerage Firm • Broker –Sells/Buys stocks for consumers – Person who acts as an agent (go between) for buyers and sellers of securities. (review: agent concept) • Commission – Fee charged by a brokerage firm for the buying and/or selling of a security. H28 Stock Exchanges • Marketplace where brokers who represent investors meet to buy and sell securities. • Examples: – 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 H29 Types of Markets • Bull Market – Occurs when investors are optimistic about the economy • Bear Market – Occurs when investors are pessimistic about the economy • Which market do we currently have? http://www.nyse.com T009-02.15 Numerical Measures for a Corporation • Current Yield – Annual dividend divided by current market value. – Return on Investment (ROI) • Price/Earnings Ratio (P/E) – Price of one share of stock divided by the earnings per share. H31 T009-02.16 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. H32 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?
Pages to are hidden for
"STOCKS AND BONDS"Please download to view full document