Investing in Stocks

Directions: Use your textbook to read and summarize the following pages regarding stock
investments. Gather information to complete the outline below:

12.1 Evaluating Stocks (Pages 261-266)

Owning Stock
a.) Common Stock
A type of stock that pays a variable dividend and gives the holder voting rights
b.)Preferred Stock
A type of stock that pays a fixed dividend but has no voting rights
c.) Income Stocks
Stocks that have a consistent history of paying high dividends
d.)Growth Stocks
Stocks in corporations that reinvest their profits into the business so that it can grow
e.) Emerging Stocks
Stocks in young, small corporations that have higher overall risk than stocks of
companies that have been successful for many years
f.) Blue Chip Stocks
Stocks of large corporations with a solid record of profitability
g.) Defensive Stocks
A stock that remains stable and pays dividends during an economic decline
h.)Cyclical Stocks
Do well when the economy is stable or growing but often do poorly during recessions
Valuing Stock
1. Explain the difference between Par Value and Market Value:

Stock Price
1. List and explain the four factors that affect the price of stock.
The Company- When a company is doing well, the stock price will go up. When a
company is doing badly, the stock price will go down
Interest Rates- When interest rates are low, most people invest in stocks
The Market- The marketplace determines a companys ability to sell its product
or service now and in the future
Earnings per Share- A corporations after-tax earnings divided by the number of
common stock shares outstanding

Stock Indexes
1. Explain what a stock index is.
A benchmark that investors use to judge the performance of their investments
2. List 3 examples of stock indexes that are used by investors.
Dow Jones Industrial Average, Standard and Poors 500, and the NASDAQ Composite
Index

Match the following terms and definitions:

1. a class of stock that pays a fixed dividend but
has no voting rights
F

a. Blue chip stock

2. Price for which stock is bought and sold in

the market place
D

b. dividends

3. an assigned dollar value to each share of stock E

c. income stock

4. a type of stock that has a history of paying high

Dividends C

d. market value

5. money paid to stockholders from earnings of a

Corporation
B

e. par value

6. a written authorization to vote for a stockholder

Risk vs. Return
7. those who own shares of stock

8. stocks of large, well-established companies

f. preferred stock
g. proxy

h. stockholders

12.2 Buying and Selling Stock (pages 269-276)

Explain a securities exchange and how it operates.
A marketplace where brokers who are representing investors meet to buy and sell
securities (NYSE)

Explain the difference between bull and bear market conditions.

Bull is a prolonged period of rising stock, bear is a prolonged period of falling stock

Investing Strategies
Short-Term Techniques:
Buy on Margin:
Borrowing money from your broker to buy stock
Sell Short:
Selling stock borrowed from a broker that must be replaced at a later time
Long-Term Techniques:
Buy and Hold:
When you buy stock and keep it for a long time
Dollar-Cost Averaging:
Involves the systematic purchase of an equal dollar amount of the same stock at regular
intervals

 Direct Investment:
Buying stock directly from a corporation
Reinvesting Dividends:
Using dividends previously earned on the stock to buy more shares
Match the following terms and definitions:
1. buying stocks directly from a corporation,
avoiding costs of purchasing
C
2. a prolonged period of falling stock prices

a. bear market
A

b. bull market

3. Selling borrowed stock that must be replaced

at a later time
G

c. direct investment

4. A marketplace where brokers meet to buy and

sell securities
F

d. dividend
reinvestment

5. the use of borrowed money to buy securities

e. leverage

6. a prolonged period of rising stock prices B

f. securities exchange

7. an increase in the number of outstanding

shares of stock
H

g. short selling

8. using earned dividends to buy more shares of

Stock
D

h. stock split