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Welcome Miami Northwestern Bulls!. Florida International University State Farm Financial Literacy Lab. What are stocks?. Represent a fraction of ownership in a corporation Referred as: Shares Equity Stock. Characteristics.

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Welcome miami northwestern bulls

Welcome Miami Northwestern Bulls!

Florida International University

State Farm Financial Literacy Lab


What are stocks
What are stocks?

  • Represent a fraction of ownership in a corporation

  • Referred as:

    • Shares

    • Equity

    • Stock


Characteristics
Characteristics

  • Represent a claim to part of the corporations assets and earnings

  • Ownership gives shareholders the right to vote on management placement and policies

  • Price determined by supply and demand

  • Potential to earn a lot if a company is successful, but also stand to lose entire investment if the company isn't successful. 


Types of stocks
Types of Stocks

  • Common Stock

  • Preferred Stock


Common stocks
Common Stocks

  • Represents voting rights

  • Most frequently used

  • Returns

    • Dividends

    • Capital Appreciation


Types of stock returns
Types Of Stock Returns

  • Capital Appreciation: A rise in the value of an asset based on a rise in market price

  • Dividends:Distributing a portion of company earnings, decided by the board of directors, to its shareholders


Preferred stocks
Preferred Stocks

  • Preference in dividends.

  • Preference in assets in the event of liquidation.

  • Convertible into common stock.

  • Nonvoting.


Risk

  • Systematic risk

    • The risk inherent to the entire market

  • Unsystematic risk

    • Company specific risk that is inherent in each investment


Advantages
Advantages

  • Limited liability

  • Historically outperforms other investment alternatives

  • Very liquid


Disadvantages
Disadvantages

  • Does not guarantee a return

  • Less claim on assets than creditors

    • Bond Holders>Preferred > Common

  • Not all pay dividends


Trading stocks
Trading Stocks

  • Most stocks are traded on exchanges

    • Places where buyers and sellers meet and decide on a price. 

      Physical Virtual


Purchasing stocks
Purchasing Stocks

  • Using a Broker

    • Party that arranges transactions between a buyer and a seller, and gets a commission

  • Using dividend reinvestment plans

    • Reinvesting dividends to acquire additional shares


Mutual funds
Mutual Funds

  • A mutual fund is a collection of stocks and/or bonds. Investors make money three ways:

    1) A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution.

    2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

    3) The value of the fund's shares increase in price.


Advantages of mutual funds
Advantages of Mutual Funds

  • Diversification

  • Economies of Scale

  • Liquidity

  • Simplicity


Disadvantages of mutual funds
Disadvantages of Mutual Funds

  • Professional Management

  • Costs

  • Dilution

  • Taxes


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