Economics Unit 6 (Chapter 14) #1

Stock

Represents ownership in a company with rights to vote and receive dividends

Privately Held Stock

Owned by a small number of people or family members

Publicly Traded Stock

Available to the general public through stock exchanges

Underwriter

An investment bank that helps private companies raise money by going public

Initial Public Offering (IPO)

Occurs when private companies first sell shares to the public

Bid Price

The highest price a buyer will pay for a stock

Ask Price

The lowest price a seller will accept for a stock

Spread

The difference between bid and ask prices

Stock Exchange

An organized electronic or physical marketplace for buying and selling stocks

Primary Market

Allows investors to buy newly created shares

Secondary Markets

Allow investors to buy and sell existing shares

Net Profit =

Money left over after paying all expenses

• Calculation: Gross Sales - Expenses

Capital Gain

Selling a stock for more than you paid

Capital Loss

Selling a stock for less than you paid

Dividends

Growth Stock

Focuses on stock price appreciation through company expansion

Income Stock

Pays out larger dividends from earnings rather than reinvesting

Growth and Income Stock

Provides a combination of price appreciation and dividends

Direct Stock Purchase Plan (DSPP)

Lets you buy stock directly from a company at set times with little or no fees

P/E (Price-to-Earnings) Ratio

Indicates a stock’s relative value compared to its earnings

Value-Oriented Investors

Seek underpriced stocks with lower P/E ratios

Growth-Oriented Investors

Accept higher P/E ratios for faster-growing companies

Dividend Discount Model

Calculates stock value based on future dividend payments

Market Capitalization =

Price per share x shares outstanding

Brokerage Account

Allows investors to buy and sell investment assets

Full-Service Broker

Provides investment advice and charge higher fees/commissions

Discount Broker

Offers lower costs but limited or no investment advice

Market Order

Executes trades immediately at the current market price

Limit Order

Specifies maximum buy prices or minimum sell prices

Stop (Stop-Loss) Order

Triggers market orders when prices reach specified levels

Securities Investor Protection Corporation (SIPC)

Insures accounts up to $500,000