EPF Mod 11 Lesson 5 The Stock Market

EPF

11.05 a&b

Stock Market Basics

Objectives

EPF.18: The student will demonstrate knowledge of
investment and savings planning by…

18f: describing how the stock market works.

Agenda

Use Quizizz to discuss the stock
market

Open Ended

When you think of the stock market, what is a word that comes to mind?

Terms to know

Stock: a unit of ownership in a company. One share of stock is equal to one unit.

Commission: a fee paid to a broker for making a purchase on your behalf

Stock Exchange: the place where stocks are bought and sold

Income: the money that you make by investing in stocks and selling them at a higher price than what you bought them at

Assets: property that is owned that is perceived to have value

Investments: a mechanism to generate future income

Costs: the price of something

Risks: the possibility of something negative happening

Multiple Choice

When you own part of a company, this means you own ________ of that company.

• a dividend

• a bond

• a stock

• the soul

Multiple Choice

The name for a part of a business that is bought and sold on the stock market is:

• Bond

• Dividend

• IPO

• Share

Multiple Choice

One “share of stock” represents

a. how much profit you will earn.

b. part ownership of a company.

c. the actual value of the stock.

d. all of the above.

• A

• B

• C

• D

Basic Types of Business Ownership

1.Sole Proprietorship—a business owned by one person

2.Partnership—a business owned by two or more persons

3.Corporation—a business owned by many people; each owns one or more parts, or shares,
of the business.

Multiple Select

Which ownership types have unlimited liability (Meaning they do have to pay the company debts)?

• Partnership

• Private limited company

• Sole trader

• Public limited company

Multiple Choice

This type of business is owned by one person.

• Partnership

• Sole Proprietorship

• Corporation

• Franchise

Multiple Choice

This type of business is owned by many people called stockholders.

• Sole Proprietorship

• Partnership

• Corporation

• Franchise

Multiple Choice

Nike, Google and Apple are examples of.....

• Sole Proprietorships

• Partnerships

• Corporations

• Franchises

Who Sells Stock?

Corporation sell stock.

These used to be physical pieces of paper.

Today, they are tracked and traded electronically.

Why Would a Corporation Sell Stock?

A company sells stock in order to raise capital for projects and activities.

When a corporation sells stock for the very first time, it is called an IPO, Initial Public
Offering

An investment bank will help the corporation sell the stock for a fee.

This process is called underwriting.

How Does an IPO work?

The federal government requires all IPOS to be registered with the Securities and Exchange Commission (SEC).

The SEC is an independent federal agency that enforces all federal laws regarding stocks and bonds

If the SEC agrees to the underwriting, then the bank must announce the IPO in a major publication.

One place that is acceptable is the Wall Street Journal.

When does the IPO happen?

The IPO is complete when the investment bank then sells the stock to investors

It will then transfer the funds to the corporation

This is a primary market

The money can then be used by the corporation for expansion or business expenses.

Buying and Selling Stocks

Why would you buy stock? (Make a profit)

Dividends: profits paid to shareholders periodically

You could also sell your shares of stock to someone else for more than you paid for them.

When you want to sell your stocks, a person can use a stockbroker (there are fees).

Buyers: investors who want to become stockholders

Stockholders: people who want to sell their shares

This is the secondary market: the corporation is not making money off of this sale.

The New York Stock Exchange is a secondary market. (2,400 corporations traded)

Multiple Choice

A form of equity financing or raising money by allowing investors to be part owners of company.

• stocks

• bonds

Multiple Choice

Stocks represent ownership in a corporation

• TRUE

• FALSE

Multiple Choice

The first sale of stock by a firm to the public is referred to as a(n) ________.

• original public submission

• preemptive initial offering

• original open offering

• initial public offering

How to Read a Stock Table

The price (value) of a stock changes constantly.

Prices are set by the perceptions of buyers and sellers.

~55% of Americans own stocks

To know how stocks are doing, you need to be able read a stock table

A Stock Table Example

Draw

Circle what I tell you to circle.

Draw

Circle what I tell you to circle.

Draw

Circle what I tell you to circle.

Draw

Circle what I tell you to circle.

Building an Investment Portfolio

A wise investor looks at more than just stocks

You should build what is called an investment portfolio

This is a collection of all different types of investments that you have

You should diversify your investments.

What does that mean?

Have several types of investments. Don’t put all of your eggs in one basket.

How Might You Diversify?

Stocks

Bonds

Cash Investment

Multiple Choice

Why should you diversify your investments?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments

• Diversifying your portfolio helps reduce risk

• If you diversify your portfolio, you will definitely earn a high return

How do you create an investment portfolio?

Why are you investing?

What are your goals?

How much money do you need to reach those goals?

What is the timeline for reaching those goals?

How long does your money need to last?

How much risk are you willing to take on?

How will inflation impact how much money you may need?

How can you balance your risk and reward?

What Happens if Your Goals Change?

Financial goals will change as you go through life.

Right now, you might be focused on a car or how to continue your education after high school.

After you finish your education, you may start looking at home ownership or travel.

If you decide to have a family, how will you help your children pay for their education,
child care, etc.?

As you continue to age, how will I be able to afford retirement?

You will need to adjust your portfolio over time as you consider some of these life
changes.

Open Ended

What is your biggest financial goal right now?

Portfolio Restructuring

●Changing goals. As individuals age, each birthday brings them closer to retirement. At some point, they might want to shift to a more conservative investment strategy, such as investing in
income-producing bonds or setting aside more money in money market or savings accounts.

●Shifting assets. The diversity of assets might not be meeting their goals. Some assets might be doing better than others, and their long-term returns might not be satisfactory.

●Changing market. Interest rates on some of their investments, such as savings accounts or money market accounts, could change. Or, the stock markets could be showing signs of trouble.

●Underachieving financial strategies. Over time, if an individual’s portfolio is not meeting their goals, they should seek new financial advice. They should restructure their portfolio for long-term
successes.

Multiple Choice

Income generated by Selling an Asset for a Profit

• Passive Income

• Portfolio Income

• Earned Income

• Investment

Reminders for Today

Don’t forget that your 11.05 a&b exit slips and
homework are due today.

Your Module 5 Test and discussion board will be due
tomorrow.

Watch out for late penalties.

Keep up the great work.