Download Chapter 9 Sources of Capital

SECTION 3
Stocks, Bonds, and Futures
Essential Question:
 Explain why and how people invest in stocks
and how stock prices are determined;
compare and contrast bonds to stocks; define
what a future is and when people often
invest in futures.
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SECTION 3
Stocks, Bonds, and Futures
Why and how people invest in stocks:
 to gain profit
 to limit the risk on their investments
 to become a part owner of a corporation
How to invest in stock:
 buy from a broker/ Online sites are e-brokers
 buy from an investment bank
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SECTION 3
Stocks, Bonds, and Futures
What is the Dow Jones:
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 The Dow Jones is an index (an average of 30
companies stock prices)
 The 30 companies are in different industries,
but represent the U.S. Economy
 When the Dow is increasing, it is inferred
that the U.S. economy is doing well; when it
decreases, it suggests that the economy is
declining.
SECTION 3
Stocks, Bonds, and Futures
Factors that influence stock prices:
 corporate finances- sales, revenue, profits,
losses, lawsuits, government fines
 investor expectations- difficult to predict
 external forces, such as changes in the
economy or international events
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SECTION 3
Stocks, Bonds, and Futures
Factors that influence stock prices:
 Bull Market- This term refers to an overall
gain in the stock market. While not all stock
values are rising, in GENERAL stock values
are increasing- this can drive people to
invest in stock and continue the trend.
 Bear Market- This term refers to an overall
loss in value of stocks on the stock market.
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SECTION 3
Stocks, Bonds, and Futures
Corporate and government bonds
 offer lower interest than stock dividends
 offer less risk than stock
 Corporate bond offered by companies, even
if company declares bankrupcy, bond
holders can attempt to get repaid
 Govt. Bond lower interest, but most secure
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SECTION 3
Stocks, Bonds, and Futures
Futures
 A future is purchasing a unit of a commodity
(oil, gold, etc.) based on the current price,
but not getting the item until a “future” time
 The hope is that by the time you receive the
commodity, the value will have increased and
you will sell it for a profit
 This is not guaranteed, sometimes the value
decreases and you lose money.
 Investing in futures can require specialized
knowledge and can be difficult.
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SECTION 3
Stocks, Bonds, and Futures
Futures
 Futures in certain commodities like oil or
gold are seen as being safe investments
(demand always for these)
 When the stock market declines, people will
often sell stocks and put their money into
futures or other “safe” investments to
prevent themselves from losing money.
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