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Investment Seminar : How the Stock Market Works! At The
October 28 , 2008 The stock market appears in the news every day. We hear about it any time it reaches a new high or a new low, and we also hear about it daily in statements like "The Dow Jones Industrial Average rose 2 percent today, ……..” Obviously, stocks and the stock market are important, but we may find that we know very little about them. What is a stock? What determines a stock's price? , What is a stock market? What is risk? What is a Short sale? , What is an asset allocation? Why do we need a stock market? If you have questions like these, then this seminar will open your eyes to a whole new world! “ Presented by |
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Investment Choices 1. Common Stock Stock is a piece of ownership of a company. When a company needs to acquire extra money to help grow the business, they can sell some or all of the ownership of the company in the form of stocks.
2. Preferred Stock Preferred Stock is a security with a defined, fixed periodic claim on the income of a firm. Dividends on preferred stock must be paid before dividends on common stock.
3. Treasury bills Treasury bills are short-term securities issued by the U.S. Treasury Commercial paper is a short-term unsecured promissory note issued by corporations and foreign governments. It is a low-cost alternative to bank loans, for much large, credit worthy issuers.
5. U.S. Treasury Notes U.S. Treasury Notes are have maturities of 1 to 10 years and pay interest on a semiannual basis.
6. U.S. Treasury Bonds U.S. Treasury Bonds are similar to treasury notes with maturities ranging from 10 to 35 years
7. Corporate Bonds Corporate Issues are usually term bonds with maturity of 5 years or more. Ø Corporate Bonds: Secured or Unsecured? • Secured bonds feature some sort of collateral to protect the investor. • Unsecured bonds or debentures are backed only by the firm’s promise to pay. Ø Bond Ratings à Most bonds are rated for default, or credit risk by one or more rating agency. Moody’s, Standard & Poors (S & P) à Top four ratings (AAA down to BBB): Investment Grade Securities à Below the top four ratings: Speculative Grade Securities (High-yield or junk bonds)
8. Municipal Bonds • Issued by local governments • Exempt from federal income taxes and often state income taxes
9. Mutual funds Mutual funds are a type of Investment Company that sells as many shares as the public demands and invests the proceeds of those sales in a wide variety of financial instruments, especially stocks and bonds.
10. Real Estate Investment Trusts (REITs): Provides investors with an indirect means of investing in real estate.
What is risk?
• Risk is the uncertainty associated with the return on an investment. Sources of Risk • Systematic Risk Factors – Affect many investment returns. – Examples: changes in interest rates and the state of the macro-economy. • Asset-specific (unsystematic) Risk Factors – Affect only one or a small number of investment returns; come from the characteristics of the specific investment.
What determines a stock's price?
What is a market index?
It is an indicator that answers the question: What happened in the market today? The purpose of market indexes is to provide a general indication of the aggregate market changes or market movements.
– Dow Jones Industrial Average (DJIA) O Best-known, oldest, most popular index O Price-weighted average of thirty large well-known industrial stocks, leaders in their industry, and listed on NYSE – S&P 500 Index O The S&P 500 index comprises 500 companies that account for 85% of the dollar value of all NYSE stocks. It is a broader and more representative average than the DOW
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