Economics

1
Economics
Investing in Stocks and Bonds
2
October 24, 1929

• Black Thursday

3
Stock

• Investment that shows ownership

4
NYSE

• Wall Street

5
Dividend

• Is Profit

6
DJIA

• Market indicator that averages 65 stocks in 3
  different categories

7
Bond
8
Bull Market

• Prices are rising

9
IPO
10
A look to your future!

• Income Expenses

• List your expenses

left over For what?????
11
What are you going to do with the left over?

• Fun
• Savings account
• Money market
• CDs

• Government Bonds
• Treasury Bills
• Corporate Bonds
• Stocks
• Mutual Funds

Securities
12
Securities refers to bonds, stocks and other
documents that are sold by corporations and
governments to raise large sums of .
These investments are commonly divided into 2
major categories
1
2
Debt Securities when companies borrow
Equity Securities shows ownership
13
What is a bond?

• A bond is a certificate representing a promise to
  pay a definite amount of at a state interest
  rate on a specified maturity date.

• By buying a bond, you become a creditor of the
  organization and in return your is used to help
  build the company.

14
More about Bonds

• Corporate bonds bonds issued by a corp.
• Government bonds - bonds issued by the
  government.
• Face value AKA maturity value the amount is
  says on the face of the bond.
• Bonds are sold in Bond Markets
• Some risk (more in corporate bonds)
• Bond prices are determined by buyers and sellers
  in the bond market.

15
Government Bonds
Municipal Bonds US Savings Bonds
Exempt from Federal and most state income taxes. Low/no risk
Interest usually not as high as corp. bonds. Can invest small amounts
Usually sold in amounts of 1,000 or more. Series EE savings bonds
Very low risk 50 10,000
Payroll deductions
Tax deferred

16
Low Risk ... Low Return!!
High Risk . . . High Return!!
17
Bonds cont.

• Interest earned purchase price redemption
  (payoff value)
• The time it takes for a bond to mature will be
  determined by the economy and current interest
  rates.
• Purchase limit 30,000 (face value)

• Pays interest when bond is cashed
• Can be purchased at any financial institution.
• HH pays interest semi-annually directly to the
  bondholder.
• No purchase limit of HH bonds.

18
What does a stockbroker do?

• Searching for potential clients using
  advertising, mailings lists, and personal
  contacts.
• Interviewing clients to determine financial goals
  and resources.
• Selling financial products and services to
  clients for investment purposes.
• Completing computerized forms to process
  transactions requested by clients.

19
Investing in Stocks

• You become part owner of a business
• Stock certificate shows representations of stocks
  purchase.
• Dividends profit
• High risk High return.
• Bond holders are paid first in goods times or bad
  times.
• Stockholders may not get paid at all in bad
  times/bankruptcy.

20
Investing in Stocks cont.

• Market value price that is bought and sold on
  the market at one particular time this is
  determined by how well the business is doing.

21
Preferred stock vs. Common stock

• PS owners get paid dividends first.
• Less risk than common stock
• No voting rights in a corporation.

• CS owners are invited to shareholder meetings.
• Are paid dividends after preferred stock holders.
• CS holders have more potential to make money
  higher risk higher earnings.

22
What do you look for in choosing a stock?

• Companys net worth
• Amount of debt
• Sales revenue (how much they bring in)
• Profits
• Dividend history
• Current outlook for the companys product and
  service.

• SEC requires companies to file detailed reports
  electronically.

23
If you are considering investing in a company,
you should ask the following questions

1. Has the company been profitable over a period of
   years?
2. Have the companys managers made good business
   decisions?
3. Does the company have growth potential in coming
   years?
4. Does the company have an unusually large amount
   of debt?
5. How does the company compare with others in its
   industry.

24
You should also consider

• The yield of a stock
• Dividend Dividend per share
• Market Price p/ share

The higher the better
25
And

• Price Earnings Ratio
• The ratio of a stocks selling price to its
  earnings per share.
• It gives you an indication of whether the stock
  is priced too high or low in relation to its
  earnings per/share.

The lower ratio the better
26

• Stockbroker licensed specialist in the buying
  and selling of stocks and bonds for a free called
  a commission.
• Full service broker provides you with
  information about securities you may want to buy.
• Discount broker places orders only. Charges
  lower commission.

• Brokers work through stock exchanges business
  organizations that accommodate the buying an
  selling of securities.
• NYSE New York Stock Exchange
• Mainly large companies ?
• AMEX American Stock Exchange
• Medium size companies ?
• NASDAQ smaller companies?

27
Mutual Funds

• Consist of buying and selling a variety of stocks
  and bonds in one family.
• Less risk because where one stock goes down
  another may go up and it offsets the loss.

28
Online Investing

• Becoming a standard practice for many individual
  investors
• Get quotes for companies
• Buy and sell stocks
• Maintain a portfolio of your investments
• Learning tips for new investors
• Research company news, income statements, annual
  reports, and stock performance histories.

29
Investment Tradeoffs
Investment Safety Liquidity Rate of return
Savings acct
market
CD
Gvt bonds
Corp bonds
Pf stock
Cm stock
Mutual funds

30
Do this at the end of the unit.

• Set up a portfolio for the following people.
• Starting out
• Saving for college fund
• Retirement age
• Middle aged.