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

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.