Chapter 11

Section 3 – The Stock Market

Buying Stock

• Stock or Equities – Represents ownership in a company

• Issued in portions called shares– Help corporations raise money

Benefits

• Dividends– Corporations pay out part of their profits

(Quarterly)• Capital Gains– Selling a stock for more than paid– Capital Loss

Types of Stock

• Income Stock– Pays dividends at regular times during year

• Growth Stock– Issuing company reinvests its earnings in its

business• Common Stock– Voting Owners

• Preferred Stock– Nonvoting, receive dividends before Common

Stock Split

• Owners of common stock may vote for this• Each single share of stock splits into more than

one share– Companies may do this when stock prices are too

high and push away investors– Usually a good thing

Risk

• More Risky than Bonds– Stockholders only receive dividends after

bondholders have been paid• If company earns low profits then dividends

are smaller than expected (based on profit)

How Stocks are Traded

• Brokerage Firm– Stockbroker• Advises investors• Links Buyers and Sellers of Stock• Commission or sell stocks at higher price than they paid

and earn the “spread”

• Stock Exchanges– Markets for buying/selling stock– Internet

New York Stock Exchange

• NYSE since 1792• Largest in Country– Handles only the largest and most established

companies (Blue Chip Companies)

NASDAQ-AMEX

• American Stock Exchange– Used to be second largest till lost business to

internet– 1998 merged with National Association of

Securities Dealers’ Automated Quotation system• Riskier stocks than NYSE (Small companies, High-tech

and Energy, Global Stocks)

Trading Stocks

• OTC Market– Internet

• Futures• Options– Call Option– Put Option

• Day trading

Measuring Stock Performance

• Bull Market• Bear Market• The Dow• S&P 500

The Great Crash of 1929