WHAT'S A STOCK



| WHAT'S A STOCK? |

|[pic] |A stock represents a little piece of a company and is bought and sold in units called shares. | |

| |When you buy a share of stock, you become part owner of the company. If the company does well, either by making money| |

| |now or by doing things that other investors think will help it make money in the future, the value of your stock may | |

| |go up. If the company does poorly - losing money, announcing job cuts or predicting that it won't earn as much money | |

| |next quarter as it did last quarter - then your stock price may drop. Sometimes, a company will decide to pay a | |

| |dividend on its stock. A dividend is a share of the company's earnings in the form of a cash payment. | |

| |There are two general categories of stock. Most stockholders own common stock in a company. These stockholders have | |

| |the right to elect the company's Board of Directors. A board of directors helps ensure that the company's management | |

| |makes decisions keeping in mind shareholder interests. The other category of stock is preferred stock. Like owners of| |

| |common stock, stockholders with preferred stock have an ownership stake in the company. However, owners of preferred | |

| |stock usually don't have the right to vote for the board of directors. Also, many companies pay a dividend on its | |

| |preferred stock. Stockholders of preferred stock get paid their dividend before holders of common stock. | |

|A COMPANY GOES PUBLIC |

|[pic] |Suppose you owned a music label called DiscMania. Business is going well, and you want to expand. You could take out | |

| |a bank loan. But you'd have to repay it in a short time. Instead, you could sell company stock, which basically means| |

| |you sell part of the ownership of DiscMania. This is what many companies do when they want to grow. They offer stock | |

| |(sell it) to the public to raise the money they need. This means they become a publicly owned company. | |

| |Why A Company Offers Stock | |

| |Lets say you need $5 million to sign several new bands and purchase two recording studios. You would contact an | |

| |investment banking firm, which would analyze DiscMania's business, help set a stock price and find investors who are | |

| |willing to buy your stock. If the price of the stock were $5 per share, you'd need to sell one million shares of | |

| |stock to raise the $5 million you need. | |

| |Next, the investment banking firm would arrange an "initial public offering" (IPO) of your stock. They would provide | |

| |potential investors with a prospectus that includes information about the stock and your company. They would also | |

| |tell people how well DiscMania has performed and why the company might perform well in the future. | |

| |After the initial public offering, if DiscMania meets certain requirements (such as a certain level of company income| |

| |and the number of shares of stock available) and pays certain fees, the stock can be listed on an exchange, like the | |

| |New York Stock Exchange. This makes it easier for shareholders to buy and sell shares of stock. | |

| |Who Buys the Stock? | |

| |The stockholders of DiscMania could be individuals, or they could be other companies such as banks, insurance | |

| |companies or even mutual funds. If DiscMania earns money (or income), it may decide to pass portion of the income it | |

| |receives, called dividends, to its stockholders. Stockholders have two options when they receive dividends. They may | |

| |request the dividend in cash or they may reinvest the amount and buy more stock in DiscMania. | |

| |If DiscMania stock is owned by a mutual fund, then the fund usually passes a portion of the dividends it receives to | |

| |fund shareholders. While the fund owns the stock, an increase in the stock's price usually shows up as a rise in the | |

| |fund's share price. If the fund sells the stock, it usually passes along any (net) price increases as capital gains. | |

| |Of course, there may be some years when CD sales are slow and DiscMania loses money. If that happens, DiscMania's | |

| |stock price could fall. Sometimes a stock price will rise or fall for reasons having nothing to do with the company | |

| |directly - for example, when prices of many other stocks being sold on the market rise or fall in response to an | |

| |economic or political event (such as a presidential election). | |

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| |Stock Market Project | |

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| |You are going to buy some shares of stock. You have 10,000 dollars to spend on one or more companies. You will buy as| |

| |many shares of stock as possible with your 10,000 dollars. You will be required to follow your stock everyday for a | |

| |month. You may use this website, or any other site or newspaper: . Every day you | |

| |must report on the following items: | |

| | | |

| |The Name of your company. | |

| |The total number of shares that you are going to buy in your company. | |

| |The stock symbol of your company. | |

| |The beginning price of your company. | |

| |The daily change in your stock. | |

| |The daily volume of shares traded each day. | |

| |The high and low price of your stock each day. | |

| | | |

| |For Example: | |

| |Disney (Walt) | |

| |37 shares at 27.00 dollars a piece. 999.00 dollars | |

| |DIS | |

| |27.00 | |

| |-.14 from yesterday | |

| |2,469,000 | |

| |27.54 was the high, 27.00 was the low. | |

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| |At the end of the month you must tell me whether you made money or whether you lost money. | |

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| |You must also produce a graph of the price of your stock over the month. | |

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