What is a Stock?

1. Can you drive on the left side of the road

with your car? 2. Can you use your clothes to tie up a student

and lock him or her in a locker? 3. Can you use your books to start a fire in

someone's living room? 4. Can you use your makeup to color over the

computer monitor screen in school?

Ownership

A type of security that signifies ownership in a

corporation and represents a claim to a part of the company’s profits and losses. Companies usually issues stock to raise money for a variety of reasons, including expanding or modernizing their operations.

Stock

Stocks are bought and sold on exchange

American Stock Exchange (AMEX) New York Stock Exchange (NYSE) NASDAQ

Common Stock – Share of company that do

not guarantee a dividend and have more risk and volatility than preferred stock. Shareholders have the right to vote for the board of directors as well on issues that come before the board

Preferred Stock – Shares of ownership of a company in which the share holder is guaranteed a dividend if one is declared and whose shares are usually not as volatile as common stock

Types of Stock

An important difference between common

stock and preferred stock is that the price of the preferred stock tend to be more stable, changing little over time, than that of common stock

Preferred stock holders do not have any voting rights.

Difference

Stock owned by investors who buys shares or

partial ownership of the assets of a business that is traded on one of the stock exchanges

Public Stock

Stock is not sold to the general public. The

stock is owned by individuals, family, or a small group of investors that have private source of funding growth.

Private Stock

Company management goes to investment

bankers to negotiate an agreement to underwrite a stock offering is known as an IPO

The investment banks buy all shares that will be offered to the public at a set price (primary market)

The investment banker then sell the stock to the general public

Initial Public Offering (IPO)

Volatility – Indicates how much and how

quickly the value of an investment, market, or market sector changes

Risk – The chance of losing all or part of an investment

Earnings – The amount of money that remains after subtracting the company’s expenses from it revenue

Dividend – Part of a company’s profits (earnings) that it pays as money to stockholders

Key Terms