DateDate: January 31, 2011: January 31, 2011

TopicTopic: The Stock Market: The Stock Market

AimAim: How does the stock : How does the stock market function?market function?

Do NowDo Now: What do you like to : What do you like to buy in the market?buy in the market?

Buying StockBuying Stock Issued in portions known as shares. Issued in portions known as shares. Represent ownership in the Represent ownership in the

corporation. corporation. Corporations raise money to start, Corporations raise money to start,

run, or expand business. run, or expand business. Stocks are also known as equities – Stocks are also known as equities –

claims of ownership in a corporation. claims of ownership in a corporation.

Benefits – Making Money!!Benefits – Making Money!!

DividendsDividends profits that are paid to profits that are paid to stockholders usually 4 times a year. stockholders usually 4 times a year.

Capital GainsCapital Gains selling the stock selling the stock for more than you paid for it for more than you paid for it (opposite capital loss). (opposite capital loss).

Types of StockTypes of Stock Income StockIncome Stock Pays dividends at Pays dividends at

regular times during the year. regular times during the year. Growth StockGrowth Stock pays few or no pays few or no

dividends. The issuing company will dividends. The issuing company will reinvest its dividends in the company. reinvest its dividends in the company.

Common StockCommon Stock owners are voting owners are voting owners of the company. owners of the company.

Preferred StockPreferred Stock nonvoting owners of nonvoting owners of the company. If the company goes out of the company. If the company goes out of business preferred stockholders get their business preferred stockholders get their money back before common money back before common stockholders. stockholders.

STOCK EXCHANGES WHERE STOCKS ARE BOUGHT AND SOLD.

Ex: New York Stock Exchange and NASDAQ (National Association of Securities Dealers Automated Quotations).

The OTC Market – Over the The OTC Market – Over the CounterCounter

Many stocks are Many stocks are bought and sold bought and sold electronically – electronically – over the counterover the counter

How Stocks Are Traded?How Stocks Are Traded?

StockbrokerStockbroker links buyers and links buyers and sellers of stocksellers of stock

Brokerage firmsBrokerage firms businesses that businesses that specialize in trading stocksspecialize in trading stocks

Earn a profit by charging a Earn a profit by charging a commissioncommission

Bull and Bear MarketsBull and Bear Markets

Bull MarketBull Market when the stock when the stock market rises steadily over a period of market rises steadily over a period of timetime

Bear MarketBear Market falls for a period of falls for a period of timetime

The Dow JonesThe Dow Jones

Represents 30 large companies in Represents 30 large companies in different industries. different industries.

3M Company3M Company Alcoa IncorporatedAlcoa Incorporated American ExpressAmerican Express AT&TAT&T Bank of AmericaBank of America Caterpillar IncorporatedCaterpillar Incorporated Chevron GroupChevron Group Cisco SystemsCisco Systems DuPontDuPont Exxon Mobil CorporationExxon Mobil Corporation General Electric General Electric

CompanyCompany Hewlett-Packard Hewlett-Packard

CompanyCompany Intel Corp. Intel Corp.

International Business International Business Machines CorporationMachines Corporation

J.P. Morgan Chase and J.P. Morgan Chase and CompanyCompany

Johnson & JohnsonJohnson & Johnson Kraft FoodsKraft Foods McDonald’s CorporationMcDonald’s Corporation Merck & Company, Inc.Merck & Company, Inc. Microsoft CorporationMicrosoft Corporation Pfizer IncorporatedPfizer Incorporated Procter & Gamble CompanyProcter & Gamble Company The Boeing CompanyThe Boeing Company The Coca-Cola CompanyThe Coca-Cola Company The Home Depot Inc. The Home Depot Inc. Travelers GroupTravelers Group United Technologies Inc. United Technologies Inc. Verizon Communications, Inc.Verizon Communications, Inc. Wal-Mart Stores IncorporatedWal-Mart Stores Incorporated Walt Disney CompanyWalt Disney Company

S&P 500S&P 500

Tracks performance of 500 different Tracks performance of 500 different stocks and bonds. stocks and bonds.

STOCK SPLIT MEANS THAT A SINGLE SHARE OF STOCK SPLITS INTO MORE THAN ONE SHARE.

Why? a company may initiate a stock split when the price of a stock becomes so high that it discourages potential investors from buying it.

HOMEWORKHOMEWORK

Test Tomorrow!!Test Tomorrow!!