Stocks-and-Bonds.docx

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1、StocksandBondsSomepeoplearccontenttolimit(heirinvestmentprogramstosuchsafeinvcsnwnsassavingsaccountsandsavingsbonds.Theytakecomfortinknowing(hatwhilehereturnfromsuchinvesimencsmaybesmall,itisSleadyandsure.OtherpeopleseekinvestmentsIhalinvolvehigherrisks.TheyunderstandthattheamxntofmoneyaninveMnenlre

2、turnsisfrequentlyrelatedIotheamountofriskitinvolves.Becausetheywanttoobtainthegreatestpossiblereturnoneachdollarinvested,theyarcwillingtotakecertainchances.StillanothergroupCfpeoplewantbsethatinvolvesecurities.Securities,whichisageneraltc11nforstocksandbonds,arcsoldbygovernmentsandcorporationsinorde

3、rtoraiselargeamountsofmoney.TherearcthreewaysinWhiChbusinessesthatneedagreatdealofmoneyforalongperiodoftimecanobtainthatmoney.Theycango(oabankandapplyforalong-termloan.Theycanusethexofisof(hebusiness.ButbanksareoftenreluctantolendlargeamountsforperiodslongerthanOnCOrtwoyean.Andprofitsarcordinarilyno

4、llareenoughlGnancenylhingveryexpensive.IhcrcforcwheneverbusinessesorgovernmentsneedfinancingformajorprojectsOrforgrowththeymustraisethemoneythroughthesaleofsecurities.BondsAbondislikeapromissorynote.CXCCpe11s(ohelpPayforimprovementssuchasStrcclS.schools,andpublicbuildings.Corporatebondsareissuedbybu

5、sinessesIoraisemoneyforexpansionandgrowth.ThCdenominationisthesumofmoneythatthebondrepresents.Thissumisprintedonthebond.hcinterestrateissetatthetimeabondisissued.Itremainsthesameuntilthebondmatures.Thematuritydateofabondisalsofixed.Bondsmaybeissuedforsuchperiodsas10,20.or30years.SupposeyouboughtaS1.

6、0(K)bondal6percentinterestfor20years.Eachyearyouwouldreceive$60ininlereM(6percentofS1.(XM).Ihcinterestwouldprobablybepaidtoyouintwopayments.$3()everysixmonths.After20years,thebondwouldmature,andyouwouldreceive$I,(XM-(hepriceyoupaidwhenyoufirstboughtthehood.BondsmaybeeitherregisteredOfbearerbonds.Are

7、gisteredbondisabondIhalhasthenaneof(beownerrecordedwiththeissueroflhebond.Interestismaileddirecllyl(hepersonregisteredastheowner.AbearerbondiseHbondwithmongage_.StocksAsabondholderyouarcacreditorof,orlenderto,abusinessfirmorgovernnnunit.Asastockholder,however,youarconeof(heownersofacorporation.Stock

8、representsaShanJofownershipinacorporation.Astockholdernayownoneshareormanysharesofacorporation*sslock,andeachshare11uycostseveraldollarsrseveralhundreddollars.Uponpurchaseofastock,astockholderreceivesastockcertificate,aprintedtb11nthatstatesthenumberofsharesapersonownsinacorporation.Ybucanbuyeitherc

9、ommonorpreferredstock.Comnonstockisstock(hatpennitsownersovoofcommonstockshareindirectlyinthemanagementofthecorporationbyvolingforthedirccun;.whoinIumappointsthepeoplewhomanagethecorporation.AlthoughthereisgreaterriskinowningcommonStOCkthaninowningpreferredstockorbonds、thereisalsothechanceofagreater

10、returnonyourinvestment.Dividendsforcommonstockarcsetbythedirectorsof(hecorporationaccordingloIheamountofxfit.Ifprofitsarehigh,dividendsofCommOnstockcanbemuchhigherthanforpreferredslock.Ifprofitsarelow.dividendsmanynotpaidIoholdersofcommonsslock.Forthisreason(hepricefsharesofcommonstockchangesmorerap

11、idlythanthepriceofpreferredstock.PreferredMockisstockwithfirstclaimonthecorporalion,searningsandassetsaftertheclaimsOfbondbokiCrs.PrCfCrrCdstockholdersdonothavevotingrightsinthecorporation.Prefen,ebondholder;.ThenSlOCkholdersarcpaidtheirinterest.Ilalsomeansthatifac。TPonHiongoesbankrupt,thebondholder

12、shavefi11itclaimontheassets.Shouldacompanyfails,itsnetassetsarcdividedfirstamongthebondholders,thenamong(heprefe11cdstockholders,andfinallyamongthecommonstockholders.6. Preferredstockdiffersfromcommonslockessentiallyinthat.7. WhenaCOrPorationgoCSbankruptorfails,thesequenceofclaimonitsassetsornetasse

13、tsshouldbebondholders,preferredstockholders,commonMockholdcrs.8. Bondsdifferfromstocksessentiallyinthat.BuyingandSellingSecuritiesSecuritiesarcgenerallyboughtandsoldthroughinvestmentbrokers.Theinvestmentbrokerishcagentwhoprocessesordersforinvestorswhowanttobuyorsellsecurities.BrOkerSusuallybuyandsel

14、lstocksthroughastockexchange,whichisIheCeInralmarket!rsecurities.Thereanrabout20oftheseexchangesIhroughoultheUnitedStales.ThetwomajorexchangesaretheNewYorkStockExchange(NYSE)andtheAmericanStockExchange,bothlocatedinNewYork.Onlybrokerswhosefirmsarcmembersofanexchangemaybuyorsellthroughthatexchange.Th

15、ebrokerreceivesacommissionforhisorherservices.Thecommissionisaerentageof(heamou11ofthesale.Whensecuritiesarfirstissued,(heyaresoldatafixedprice.Oncetheyaresold,however.Ihcpricechangesgreatly.SonietiniesIhepriceschangedaylday.dependingonsupplyanddemand.TheStockMarketCorporationsissueonlyalini(ednumbe

16、rofsharesofsock.After(hosesharesan?PUlChaSedtheyInaybetraded.Thismeans(hatpeoplebuyandselltheshares.Whenyoubuystuck,youcanneverbesureyouwillgelbackWhMyoupaid!rit.Thepriceofastock,likethepriceofmostothergoodsandservices,dependsonhowmuchbuyersarcwillingtopay.Thepriceabuyeriswillingtopaydependsonanumbe

17、roffactors.AmOngthemarcthese: ,Ihcgeneraleconomicoutlocwillinfluencethepriceofstock.Whentheoutlookisgcxlmorepeoplewillwanttobuysuxrk.Thismeansthereismrcdemandforslock,andslockpriceswillgoup.WhenIhCeconomicOUuookispoor,thenthedemandforStoCkdrops,andpriceswillgodown. Acorporation,searningswillaffcx(th

18、epriceofitsslock.Usually.Ihegreatertheearnings,thegreaterlhcdividendsacoro11i(ionwillpay.Whencorxra(eearningsarehigh,hestockisindemand,andpricesgoup. Buyersoftenborrowmoneytobuystocks.Ifimcrcstralesforborrowingarchigh,peopledonotborrowanddonobuystock.Becausethedemandislow.stockpricesgodown.Eachdayst

19、ransactionforstockslistedonthemajorstockexchangesarcrecordedandpublishedinthedailynewspapers.IfyouwanttoknowthePriCeofastock,yocanlookinthefinancialsectionofyourlocalnewspaper.9. Inthefinalanalysis,(hedecisivefactor(hataIYeclsthemarketpriceofslockis.10. AllofthefollowingstatementsarctrueEXCEP,that.T

20、heBondMarketAbondholdermaysellabondbeforeitsmaUrilydate.Bondprices,likeSUKkprices,dependonhowmuchpeoplearcwillingtopay.However,bondpricesdonotchangeasmuchfromdaytodayasStoCkprices.Oneofthefactorsthatinfluencebondpricesisthechangeofinterestratesintheeconomy.Forexample,supposeyouhough(a$1,000bondfivey

21、earsagoatafixedrateof5percenti11eres.YdurbondwouldpayS50ayearininterest.However,supposeIhaMhiSyear(heinterestrateonloanedmoneyis8PeroelN.A$1,000bondPUIrhi1.SedthisyearWoUkIhaveafixedinterestrateof8perventandwouldpay$80ayearininlereM.Ifyouwantedtosellyourbondthisyear,nobuyerwouldbewillingtopayS1.(XX)

22、forit.WithaCUlTCntearninginterestrateof8percent,thebuyerwouldlosemoneyinbuyingyourbondfor$1,000.Tosellyourbondonthebondmarket,youwouldhavetosellforlessthan$1,000.OntheOlherhand,ifinterestralesintheeconomyhaddroppedbelow5percent,buyersIlIiglNbewillingopayInorethan$1,000foritbecauseithasafixedruleofin

23、terestof5percent.AnotherfactorthataiYcctsthepriceofbondsisthecreditratingofthecompanyorgovernmentunitissuingthebond.IfthecreditratingofChccompanychangesduringthelifeofthebond,thepriceofthebondwillchange.Whenhccreditratinggoesdown,(hepriceof(hebondmaygodownalso.Corporateandgovemnenlbondpricesarvquote

24、dinthefinancialpagesofnewspapers,likeSkxrkprices.Thequotesshowthematuritydateandtheinterestraleofthebondandgivethemarketpriceofthebondthatday.Bondpricesarcgiveninvalueper$1(X).Apricequexedas,95,meansthatyoucouldget$95Ofbra$1,000bond.ConsiderationsBeforeInvestinginSecuritiesSecunliesarenolforamateurs

25、.Thesecuritiesmarketisfullofrisksfor(hesmallinvestorbecauseknowingwhatstocktobuy.whentobuy.andwhentosellarcdif11cultdecisions.Mostinvestorsdonohavetimetodothencccssarj,researchtomakewisedecisions.Theyrelyonguessworkandarcoftenwrong.However,therearcseveralthingstokeepinmindifyouarcinterestedinbuyings

26、ecurities. Besureyoucanaffordtherisk.Askyourselfthreequestions:Iflmaketheinvestment,will1haveenoughmoneytomeetanyemergencythatmayarise?Can1stillcovernormallivingexpenses?Can1affordtoIOSCall1invest?Onccyoubuysecurities,youshouldnothavelosell(hemtocoveryourday-t(kylivingexpensesortomeetunexpectedemerg

27、encies. 1.imittheriskyoucake.Dolrtinvestonthebasisoftipsorrumors.Alltoooftentheyarcwrong.Remember,thereisriskinanyinvestment,andonlyyoucandecidehowmuchriskyoushouldassume.EoreverypersonWbOhasmademoneyonarumration(hatsellsitsownstocksandusesIheInoneyIOinvestinothercorporations.Youbuysharesinamutualfu

28、nd,andyurmoneyisusxlbythemutualfundcompanytoinvestinseveralsecurities.Becausetheyarclae.mullfundcompaniescanemployinvestmentanalystswhostudythemarketcarefully.FOrthisreason,mutualFundsarcpreferredbymanysmallinvestorswhoarcnotablecomanage(heirowninvestmentseffectively.Themutualfurulinvestorreceivesdividendsonmutualfundshares.Mostmutualfundschargeafeefor(heirservices.14. WhatshouldNOTaninvestordoinordertobesuccessfulinbuyingsccurilies?15. Manysmallinvestorsprefermutualfundsbecause.