4.03 part 2

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INVESTING WITH STOCKS 4.03 Principles of Business

Stock Options Two Main Categories:

Stock Options Two Main Categories Preferred Pays dividends before common stock Pays dividends at a set rate Less risky than common stock Preferred stockholders do not have voting powers Common Represents general ownership in a company Shares in the profits No set rate for dividends Common stockholders invited to annual corporate meetings Common stockholders have one vote per share

Stock Transactions:

Stock Transactions What are stockbrokers ? A licensed specialist who buys and sells tocks and bonds at a set price. Stockbrokers are paid a fee for their services called a commission

Stock Transactions:

Stock Transactions What is the stock exchange ? Where the trading of securities (stocks and bond) take place Best-known stock exchange is the New York Stock Exchange in New York City What is the market value of stock? The price for which a share of stock can be bought and sold

Stock Table :

Stock Table A B C D E F G H I 52 Week Sales High Low Stock Div Yld PE Vol 100s High Low Last Chg 12 1/8 8 AAR .44 6.2 15 6 6 3/4 6 5/8 6 1/2 -1/8 49 1/2 31 1/4 ACF 1.76 7.4 7 477 36 1/4 37 5/8 37 +3/4 26 1/2 16 AMF 1.36 6.7 7 133 17 1/2 17 1/2 17 1/2 -3/8 6 1/8 3 1/8 ARA 2 7 8 10 33 7/8 33 7/8 33 -1

Stock Transactions:

Stock Transactions Bull Market - refers to prices of securities rising for a long period of time Bear Market - refers to prices of securities falling for a long period of time

Selecting Stock:

Selecting Stock Factors that could influence investors in selecting stock: Economic factors can affect company profits Inflation Interest rates Consumer spending Employment

Selecting Stock:

Selecting Stock Company factors Has the company been profitable? Do they have a lot of debt? Do they have good management? Do they have the potential to grow?

Selecting Stock:

Selecting Stock Other Company factors Dividend yield Dividend per share/Market price per share = Dividend Yield Example: If the total yearly dividend is $2.40 and the selling price of the stock if $40, the yield would be : $2.40 = 0.06 or 6% $40 Price-Earnings Ratio The relationship between a stock’s selling price and its yield Selecting Stock

Yield Calculations:

Yield Calculations Yield is usually calculated in the following way: current value – original value = yield original value Current value=closing price for the day Original price=price paid for stock Yield=Interest earned For example: a stock is bought at $40 and valued at $43: $43 – $40 $40 yield = 7.5%

Yield Calculations:

Yield Calculations Dividends also may be added to the calculation. For example: a stock is bought at $40 and sold at $43, but also earned a $2 dividend during that time: $43 + $2 – $40 $40 yield = 12.5%

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