Investing in Stocks

Directions: Use your textbook to read and summarize the following pages regarding stock
investments. Gather information to complete the outline below:

12.1 Evaluating Stocks (Pages 261-266)

Owning Stock
a.) Common Stock- shares entitling their holder to dividends that vary in amount
and may even be missed, depending on the fortunes of the company.

b.)Preferred Stock- entitles the holder to a fixed dividend, whose payment takes
priority over that of common-stock dividends.

c.) Income Stocks- equity security that pays regular, often steadily increasing
dividends, and offers a high yield that may generate the majority of overall
returns.

d.)Growth Stocks- company stock that tends to increase in capital value rather
than yield high income.

e.) Emerging Stocks- a mutual fund or exchange-traded fund that invests the
majority of its assets in the financial markets of a single developing companies
or a group of developing companies.

f.) Blue Chip Stocks- giant companies with solid reputations, financially fit
corporations with dependable earnings, usually paying additional income to
investors in the form of dividends.

g.) Defensive Stocks- companies whose business performance and sales are not
highly correlated with the larger economic cycle.

h.)Cyclical Stocks- equity security whose price is affected by ups and downs in the
overall economy. Typically related to companies that sell discretionary items
that consumers can afford to buy more of in a booming economy and will cut
back on during a recession.
Valuing Stock
1. Explain the difference between Par Value and Market Value:
Par value is determined by the issuing entity and remains unchanged over time, but
market value is highly fluid and is dictated by the psychology of the market place.
Stock Price
1. List and explain the four factors that affect the price of stock.
Interest rates- this can reduce company profits and the dividends it pays shareholders.
Economic outlook- if the economy grows or expands then stock prices may rise.
Inflation- higher consumer prices can slow or reduce sales or profit.
Deflation- falling prices tend to lower profits for companies and decreased economic
activity.

Stock Indexes
1. Explain what a stock index is.
Measurement of the value of a section of the stock market.
2. List 3 examples of stock indexes that are used by investors.
S&P 500, NASDAQ, NYSE US 100

Match the following terms and definitions:

1. a class of stock that pays a fixed dividend but
has no voting rights D- preferred stock

a. Blue chip stock

2. Price for which stock is bought and sold in

b. dividends

the market place

D- market value

3. an assigned dollar value to each share of stock

c. income stock

4. a type of stock that has a history of paying high

Dividends
C

d. market value

5. money paid to stockholders from earnings of a

Corporation
B

e. par value

6. a written authorization to vote for a stockholder

Risk vs. Return
E- proxy

d. preferred stock

7. those who own shares of stock

e. proxy

8. stocks of large, well-established companies

f. stockholders

12.2 Buying and Selling Stock (pages 269-276)

Explain a securities exchange and how it operates.
Securities exchanges are a marketplace where brokers who are representing
investors meet to buy and sell securities.

Explain the difference between bull and bear market conditions.

Bull market- strong stock market where stock prices are rising.
Bear Market- weak market where stock prices are falling.

Investing Strategies
Short-Term Techniques:
Buy on Margin: purchasing an asset by paying the margin and borrowing the
balance from a bank or broker.

Sell Short: borrowing money from a broker

Long-Term Techniques:
Buy and Hold: Passive investment strategy in which an investor buys stocks
and holds them for a long period of time.

Dollar-Cost Averaging: buying a fixed dollar amount of a particular investment

on a regular schedule regardless of the share price.

Direct Investment: controlling ownership in a business enterprise in one

country by an entity based in another country.

Reinvesting Dividends: Equity investment option offered directly from the

underlying company.

Match the following terms and definitions:

1. buying stocks directly from a corporation,
avoiding costs of purchasing
C

a. bear market

2. a prolonged period of falling stock prices A

b. bull market

3. Selling borrowed stock that must be replaced

at a later time G

c. direct investment

4. A marketplace where brokers meet to buy and

sell securities
F

d. dividend
reinvestment

5. the use of borrowed money to buy securities

e. leverage

6. a prolonged period of rising stock prices B

f. securities exchange

7. an increase in the number of outstanding

shares of stock
H

g. short selling

8. using earned dividends to buy more shares of

Stock E

Stock exchange
Stock is issued and sold as a way to raise money for business operations,
expansion, and other needs.
Initial public offerings- occurs when companys decide to go public
Secondary market- type of buying and selling of stocks
NYSE has people who actually stand on the floor buying stocks
NASDAQ (national association of security dealers )
SEC- securities and exchange commission
Regulates the stock market
Monitors the stock market
Ensures companies are providing accurate information to investors

Dollar return Vs. percent return

h. stock split