Stocks and bonds are two common types of investments. Stocks represent ownership in a company and allow investors to share in its profits through dividends or capital gains. Bonds are loans made to a company or government that must be repaid to the bondholder by a particular date. Stocks tend to offer higher long-term returns than bonds but also carry more risk, as stock prices can fluctuate daily and drop significantly, while bonds have a fixed interest rate and repayment of original capital. The major US stock exchanges are the New York Stock Exchange (NYSE) for large, established companies and the NASDAQ for technology and growth companies.

1. BELL RINGER 04.16.2015
Write complete question and answer on your Bell Ringer form.
Which makes a more
attractive investment
to you, stocks or
bonds? Explain your
answer.

2. ECONOMICS
April 16, 2015
Chapter 11: Financial Markets
Section 11.3: The Stock Market

3. BUYING STOCK
Buying stock in a company gives you a
share of that company, share of ownership
(equity) and profits.
As a stockholder, you are entitled to
dividends (part of the profits) from the
company.
11.3

4. BUYING STOCK
When you sell stock for a profit, that profit
is called a capital gain. When stock is sold
at a loss it is a capital loss.
So, we can also infer that stock can be
viewed as capital.
11.3

5. BUYING STOCK
Stocks may be classified by whether or not
they pay dividends:
Income stock pays dividends, usually
quarterly.
Growth stock gains in value by the
company reinvesting the profits into
the growth of the company.
11.3

6. BUYING STOCK
Stocks can also be classified by whether
the stockholder has a vote in company
actions:
Common stock is those shares which
give the holder a vote in certain
corporate business.
Preferred stock does not carry a vote,
but gives its holders “first payout”
(dividends, returns).
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7. BUYING STOCK
Risks involved in buying stock are:
Value of stock can go up or down
based on immediate company
performance.
In a company bankruptcy,
bondholders are paid before
stockholders.
Remember, higher return = higher risk.
11.3

8. TRADING STOCK
Usually, folks like us will buy stock through
a stockbroker, either directly or online.
Stockbrokers work for a brokerage.
Brokerages either charge a commission or
deal in stock for a profit.
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9. TRADING STOCK
Stocks are traded on a stock exchange as
secondary markets.
Major US stock exchanges include the
NYSE and NASDAQ.
Stocks’ performance is tracked by the
Down Jones Index and/or the S&P 500
index.
11.3

10. TRADING STOCK
The New York Stock Exchange (NYSE):
Began in 1792
Limited number of “seats,” or
members who can participate
Includes only the largest companies
“Blue chip” stocks are those in high
demand
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11. TRADING STOCK
The OTC (Over The Counter) market
includes any and all companies, and
purchases can be made directly from
dealers or through brokers.
NASDAQ (National Association of
Securities Dealers Automated Quotations)
is the stock exchange that deals in OTC
stocks, and sends information via
computers.
11.3

12. TRADING STOCK
Futures are commodities that are sold on
contract at a specific date in the future.
Options are contracts that give investors
the choice to buy or sell assets based on
price and limited by a specific length of
time.
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13. TRADING STOCK
An option to buy stocks at a specified time
in the future is a call option.
An option to sell stocks at a specified time
in the future is a put option.
Daytrading is the practice of buying and sell
the same stock during the period of one
day in an effort to profit off the day’s
fluctuation in the market.
11.3

14. CHECK QUESTION 11.3.1
Write complete question and answer on your Bell Ringer form.
Describe the differences between the
two main US stock exchanges.

15. BELL RINGER 04.20.2015
Write complete question and answer on your Bell Ringer form.
Which group rates
companies based on
financial reliability
and keeps track of
stock performance?

16. MEASURING STOCK
PERFORMANCE
The stock market is described in terms of
“bear” (stocks are steadily declining) or
“bull” (stocks are steadily rising).
The Dow Jones Industrial Average (The
Dow) was established in 1896 and has
tracked the performance of certain stocks
(only 30 companies) that represent the
overall stock market.
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17. MEASURING STOCK
PERFORMANCE
The S & P 500 (Standard and Poor’s 500)
tracks the stocks of 500 different
companies as a measure of overall stock
performance.
The S & P 500 includes mainly companies
listed on the NYSE but also some from the
NASDAQ and OTC markets.
11.3

18. GREAT CRASH OF 1929
Prior to the Great Crash, the stock market
had grown by more than 300% in the
previous 4 years.
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19. GREAT CRASH OF 1929
Signs of trouble that were overlooked
include:
Much of nation’s wealth held by very
small number of companies and
individuals.
Personal debt skyrocketed.
Industry was producing more goods
than consumers could buy.
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20. GREAT CRASH OF 1929
Signs of trouble that were overlooked
include:
Investors were creating huge debts
trying to play the stock market
(speculation).
The practice of buying on margin
escalated the debt when companies
collapsed.
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21. GREAT CRASH OF 1929
The peak of rising stock prices was
reached on September 3, 1929.
As stock prices began to drop, some
brokers demanded payment on loans.
More investors were forced to sell stocks,
which drove prices down further.
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22. GREAT CRASH OF 1929
In the Crash of 1929, about 4 million people
lost their money in the stock market.
A second crash occurred on “Black
Monday,” October 18, 1987, where the
Dow lost 22% of its value (twice what was
lost in the “Great Crash”).
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23. GREAT CRASH OF 1929
A third large drop happened after
September 11, 2001.
In each instance after the Great Crash,
policies put into place because of the Great
Crash helped keep the economy from
going into a depression.
11.3