Stock Market Intro

An Introduction to the Stock Market

AOF

Applied Finance

Copyright ©. All rights reserved

NAF 2021

Multiple Choice

Which of the following statements best describes the term market capitalization?

• The total number of shares a company has issued
  

• The total value of all outstanding shares of a company's stock
  

• The amount of money a company generates from its operations
  

• The percentage of a company's profits paid out to shareholders as dividends

Stocks represent part ownership of a company

Once a company goes public, all ownership
is in the form of shares of stock.
• The original owners hold some of it.

• Some may go to top executives.
• Some may be offered to employees for purchase

• The rest may be offered to the public.

Multiple Choice

True or False, stocks represent part ownership of a company.

• True

• False

Stock exchanges all around the globe are where
stocks are bought and sold

• A company decides at which stock exchange it

wants to be listed.

• Stock prices are displayed on a board and

constantly updated.

• Each stock has a distinctive abbreviation.

The New
York Stock
Exchange

Fill in the Blanks

Stock

like the New York Stock Exchange is where stocks are bough and sold.

How do you know how the market is performing?

Market indexes measure how a segment of the market is
doing. For example:

• The Dow Jones Industrial Average lists 30 major

companies.

• The Morgan Stanley High Technology 35 Index lists 35

US technology firms.

• A rising market is a “bull market.”
• A falling market is a “bear

market.”

Match

Match the following

• Market indexes measure how a _______ of the market is
  doing.

• A rising market...

• A falling market...

segment

...is a bull market.

... is a bear market.

• segment

• ...is a bull market.

• ... is a bear market.

Why would a company sell off part of itself as stock?

•It needs cash

for capital
investment.
•It doesn’t

want to repay
a loan.

•Expansion

would mean
more sales
and higher
profits.

• Higher

profits
would boost
its stock
price and
company
value.

Open Ended

Why would a company sell off part of itself as stock?

Why would someone buy part of a company?

• Investors want their money to

earn more money.

• Over time, stocks give greater

payback than bonds, savings,
and other investments.

• Shareholders get a say in how

the company is managed.

If you owned a stock that fell in price, would you sell it or hold
on to it? Why?

Open Ended

If you owned a stock that fell in price, would you sell it or hold
on to it? Why?

How do you buy shares in a company?

• Stock sales are

arranged through
stockbrokers, who
charge a commission.

• The more service you

get, the higher the fees
the broker charges.

• You can research new

stocks by reading the
company prospectus.

Front page of a prospectus

Would you prefer to do your own
research or rely on a broker?

What affects stock prices?

Investors look at:
• How well the company is

doing

• Price-earnings ratio
• Capitalization
• Supply and demand—of a

stock or a commodity

• Current events—politics, the

economy, natural disasters,
terrorist attacks

How might hurricane damage affect the stock of a
construction firm?

Open Ended

How might hurricane damage affect the stock of a
construction firm?

Stocks are just one part of a balanced financial plan

The stock market isn’t for the
timid.

• Growth potential comes with

risk.

• Remember that your

investments are not insured.

• Diversify your portfolio (have

a mix of investment types).

• Have clear goals geared to your

stage of life.