STOCKS AND BONDS by alicejenny


									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
   – 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
               – Used to finance schools,
                 roads, airports, etc.

                      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

                 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.
• 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.
            Brokerage Firm
• Broker –Sells/Buys stocks for consumers
  – Person who acts as an agent (go between) for
    buyers and sellers of securities. (review: agent
• Commission
  – Fee charged by a brokerage firm for the buying
    and/or selling of a security.

               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

        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?
    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?

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