Introduction to Stock Market

1. Introduction to Stock Market

2. Stock Exchange – Place where publicly held companies are bought and sold • Nasdaq – an index based on stock prices of over 5000 companies traded on the market. Transactions take place on a virtual market place. • Dow Jones Industrial – An index based on the stock prices of 30 actively traded large companies. This is the oldest and most widely followed index of stock market performance. • S&P 500 – An index based on the stock prices of the largest 500 firms traded on the New York Stock Exchange. Common Vocabulary

3. Public Company – A company owned by investors who buy shares of stock. Shares of the company sold through one of the stock exchanges. • Private Company– Company that is owned by a person, family, or group and does not sell shares to public on stock market. • Interest– A Fee charged to use another’s money or credit. • Simple- Interest calculated at regular intervals on principal only. • Compound – Interest calculated at regular intervals on principal and interest added previously. Common Vocabulary

4. Stocks– Ownership of shares in a business. • Common – shares do not guarantee dividend, higher risk – higher returns, includes voting power at annual meetings • Preferred – ownership that guarantees dividend if it occurs, is less risk with no voting rights. • Shares – A unit of ownership purchased in a corporation or Mutual Fund. • Dividends – part of the company earnings that pays as money to stockholders. • Bonds– When a company or the government needs to borrow money they sell bonds. Typically sold in certain increments, with a stated interest and maturity (life/term length ) • Mutual Funds– company that sells stock in itself and uses the money to buy stocks and bonds issued by other companies. (Benefits include – large variety of investments with smaller risk) Stocks/Bonds/Mutual Funds

5. Risk – the chance of losing part or all of an investment. • Conservative – Preferred Stock • Moderate – Growing companies • Beta Number– A calculation that helps measure the level of risk ( higher than 1 provided higher risk and higher earnings potential) • Volatility – indicates how quickly the value changes • P/E Ratio – Price to earnings ratio- calculated by dividing the current price per share by current earnings per share. Risks

6. 401 K –Retirement savings funded by employee contributions often matched by employer. Tax free until money is withdrawn. • IRA’s – (Individual Retirement Accounts) –Long term, tax sheltered deposits that are set up as a retirement plan- has amount limitations ($3000 per year for tax sheltering benefits) • Money Market – Special savings account where money is loaned for less than 1 year – usually issued by financial institutions. • Certificate of Deposits – (CD’s)Special form of deposit offered by banks that generally pays compound interest for a fixed period of time. Retirement & Savings

7. Bull Market – Period during which stock market prices move up for several months or years in a row. • Bear Market – Period during which stock market prices move down for several months or years in a row. • IPO – Initial sale of stock to public by investment bankers. • Yield – Rate of the return of an investment paid in dividends or interest expressed as a percent • Savings bonds – low-denominations savings bonds sold by the government purchased at a discount and can take up to 18 years to mature at full price Other Basic Information