CHAPTER 7

STOCKS AND BONDS

1) Buying stocks means purchasing something that somebody else owns.

2) The price of a stock changes by the minute depending on the demand.

2) Corporations (big companies) sell stock to raise money and grow the business

The first time selling stock = “going public”

A stock = a share in the company’s profits

One stock = one share of ownership in the company

Millions of stocks “trade” hands on a daily basis

When investing, you are hoping that a company will make a profit.

When you earn money from stocks, you make a capital gain, which means you made more money than you invested.

When you lose money, you take a capital loss.

3) Companies also raise money by selling bonds. They are like loans.

The company is promising to pay you (the investor) back in the future and pays you interest in the meantime.

Bonds and stocks are called securities.

Bonds must be paid back unless the company files for bankruptcy

BONDS

Companies that issue stock do not have to pay the money back from investors. The only time an investor gets money back for stocks

is when they sell the stocks they own.

Newly issued stock is called an IPO, or “Initial Public Offerings”

Previously owned stocks are traded on secondary markets.

4) There are two different types of stocks –Common stock – investors are allowed voting rights but typically vote by proxy where they allow another person to vote for them at the annual stockholder meeting

Preferred stock are issued to those who don’t want voting rights, but these offer a dividend.

What do these companies all have in common when it comes to stocks??

Alcoa Steel / Aluminum

Altria Tobacco

American Express Credit / Banking

American International Group Insurance

AT&T Phone / Cable / Internet

Boeing Building / Air Travel

Caterpillar Machines / Building

Citigroup Banking

Coca-Cola Soft drinks

Dupont Carpets / Energy / etc

Exxon Mobil Fuel

General Electric Technology / MachinesGeneral Motors AutomobilesHewlett-Packard Technology

Home Depot Building and Home Impr.Honeywell International EnergyIntel TechnologyInternational Business Machine TechnologyJP Morgan BankingJohnson and Johnson Pharmaceuticals / homeMcDonald’s Fast FoodMerck and Co PharmaceuticalsMicrosoft Technology3M TechnologyPfizer Pharmaceuticals

Proctor and Gamble Home and Wellness

United Technologies Aerospace and Building

Verizon Communications Phones - Cellular

Walmart Retail

Walt Disney Entertainment

5) Savings account – an account in a bank where a person is earning a rate of interest and will not lose any of the original investment.

Savings accounts do not make nearly as much money as stocks (long term).

6. WHERE TO BUY AND SELL STOCKS

1. Many people buy their stocks through stockbrokers2. People can go online and purchase stocks at places like E-

Trade3. Most stocks are traded at a stock market - the largest in

the US is the New York Stock Exchange 4. AMEX and NASDAQ are two other stock exchanges

(Nat. Assoc of Stock Dealers Automated Quotations)5. On the floors of the exchanges, floor traders rush around

shouting orders6. The Dow Jones Industrial Average -- based on prices of 30

leading industrial companies7. If the DOW is up, people feel confident in business and the

economy

8) A bear market – a time when stock prices are falling and there is a lot of

negativity or pessimism in the future of the market.

9) A bull market – a time when stock prices are rising and there is a lot of positive feelings or optimism in the future of the market.

THE NYSE

E. THE SEC

1. The Securities and Exchange Commission2. It regulates trading of securities (stocks and bonds)3. It tries to prevent people with “insider information”

from making money unfairly4. It requires any entity issuing stocks and bonds to

register with the government5. It requires entities issuing stock to outline plans for

its operations6. It investigates “crooked” activities by businesses

F. GUIDELINES FOR INVESTING

1. Ask friends about stockbrokers they can trust2. Think over advice from a broker before investing3. Read company profiles to see if their goals

are solid4. Know what is happening in the stocks and bonds

markets5. You are taking chances when investing in stocks!

There are zero guarantees that you will make money!!

ALL TIME STOCK GAME RECORD:ERNESTO MEJIA: $36,272,2122011-2012

RESULTS 2013 1st Place - Ruben Armenta $42,6392nd Place - Brent Lucas $14,358 3rd Place - Eduardo Gallo $13,9214th Place - Michael Corbett $10,6225th Place - Francisco Ortiz $ 7,2556th Place - Tony Tovaraz $ 6,4337th Place - Kao Saephan $ 6,1178th Place - Justin Saephan $ 6,038CLASS AVERAGE: $13,422.88