1. Chapter 11:Financial MarketsSection 3: Buying and Selling Stocks

2. Objectives: • Discuss why people buy stocks. • Identify the benefits and risks of buying stocks. • Describe how stocks are traded. • Explain how stock performance is measured. • Digital Resource: https://www.youtube.com/watch?v=Sbp_t4guM8g

3. The Stock Market • Remember that we learned in Chapter 8 that corporations raise money through stock and bond issues. • When a company 1st issues stock, it is sold to investment bankers in the primary market. This is known as an initial public offering (IPO), this is the stock sale that raises money for the corporation. • Then most stock is then resold to investors through a stock exchange, a secondary market where securities (stocks & bonds) are bought & sold. • People that buy these stocks, do so with the expectation that the stock price will rise. Gains made from the sale of securities are called capital gains.

4. Why Buy Stock? • To earn dividend payments—which are a share of the corporation’s profits that are paid back to the stockholders. • To earn capital gains by selling the stock at a price greater than the purchase price—if the you sell the stock at a loss it is called a capital loss. • As we learned before investing in stocks has more risk. Corporations are not required to pay dividends. Also, there is no guarantee that the stock price will be higher when the investor wants to sell the stock.