* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Video Q and A for Episode Two of No
Survey
Document related concepts
Early history of private equity wikipedia , lookup
Special-purpose acquisition company wikipedia , lookup
Systemic risk wikipedia , lookup
Capital gains tax in Australia wikipedia , lookup
Environmental, social and corporate governance wikipedia , lookup
Socially responsible investing wikipedia , lookup
History of investment banking in the United States wikipedia , lookup
Investment banking wikipedia , lookup
Hedge (finance) wikipedia , lookup
Investment management wikipedia , lookup
Securities fraud wikipedia , lookup
Investment fund wikipedia , lookup
Short (finance) wikipedia , lookup
Transcript
No-Frills Money Skills Video Series Episode 3: Get Into Stocks (8:58) View Episode 3 at https://www.stlouisfed.org/education/no-frills-money-skillsvideo-series/episode-3-get-into-stocks. 1. What is a stock? A stock is a share of ownership in a company; ownership in the company is equal to the number of shares owned by the shareholder relative to the total number of shares owned by all members. Stocks are often traded publicly. A publicly traded company issues stock that is traded on a stock exchange, such as the New York Stock Exchange. 2. For what two purposes do people generally buy stocks? People generally buy stocks to earn capital gains or to receive dividends. Capital gains are the money earned when an asset increases in value from the time it is purchased to the time it is sold. That is, when you sell an asset for more than you paid for it, you earn capital gains. A dividend is a share in the company’s profit—it is money you are paid when you are a stockholder. 3. What are some reasons company owners might decide to “go public” and issue stock? A company owner may issue stock to raise money for expansion because the money could be difficult to obtain from another source. 4. What is a major cost a company incurs by selling stock? 5. What are some differences between owning common stock and preferred stock? Common stockholders are considered company owners and may vote in matters affecting the company. Preferred stockholders do not have voting rights in the company but receive dividends before any return is paid to common stockholders. In the event of liquidation—that is, the company sells its assets and closes its doors—preferred stockholders would receive payment before common stockholders. 6. What is investment risk? Investment risk is the uncertainty that an investment will gain, or even retain, its value. 7. What is the general relationship between risk and potential reward when investing? In general, the higher the risk of loss of principal for an investment, the greater the potential reward, and, conversely, the lower the risk of loss of principal for an investment, the lower the potential reward. To attract buyers, the seller of a potentially risky investment must offer a higher return than the buyer could potentially earn on a less-risky investment. In other words, when the risk of potential loss is high, people expect greater returns. When the risk of potential loss is lower, people are willing to accept lower returns. When a company sells stock, it gives up sole ownership of the company and therefore must share the profit and control (management) of the company with its stockholders. © 2015, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.