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CHAPTER 12, SECTION 3:

CHAPTER 12, SECTION 3:. Investing in Equities, Futures and Options. Equities. Equities are stocks that represent ownership shares in a corporation The market for equities are competitive because of the large numbers of investors and the amount of good information available.

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CHAPTER 12, SECTION 3:

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  1. CHAPTER 12, SECTION 3: Investing in Equities, Futures and Options

  2. Equities • Equities are stocks that represent ownership shares in a corporation The market for equities are competitive because of the large numbers of investors and the amount of good information available

  3. Market Efficiency • Many things influence the price of equities • Some companies have relatively few shares to sell, while others have a large number. • Some companies are profitable, others are not • Expectations are important - - two companies may be almost exactly equal, but one will have better prospects for growth

  4. As a result,stock prices can vary significantly from one company to another • The dilemma for the investor then is which stock to • buy and which one to avoid. ** THE EFFICICENT MARKET HYPOTHESIS** This states that stocks are always prived about right and that bargains are hard to find, given the amount of analysis done on them done at the same time, and therefore market fluctuations are quickly adjusted

  5. Because your chances are strong that your stocks could go down, you need to spread your risk— • This is done through Portfolio Diversification: The practice of holding a large number of different stocks so that declines in some will be offset by gains in others

  6. Different ways to buy equities • Individuals can buy them on line by opening an account through a discount brokerage firm - - the individual then manages the account through their own PC One can also pay for the services and expertise of a stockbroker – aperson who buys or sells equities for clients The broker arranges to buy stocks at a stock exchange or provides securities from an inventory or other broker

  7. Organized Stock Exchanges • A number of securities exchanges exist – places where buyers and selers meet to trade securities An organized exchange gets itsd name from the way it conducts business Members pay a fee to join and trades can onlt take place on the floor of the exchange

  8. The New York Stock Exchange • (NYSE)-This is the oldest, largest, and most prestigious of the stock exchanges • Has certain rules for both its members and the corporations listed on the exchange • It has about 1,400 seats or memberships that allow access to the trading floor and many large corporations a number of seats • Members may pay several millions of dollars for a seat and can elect their own directors and vote on rules and regulations of the exchange

  9. The NYSE LISTS STOCKS FROM ABOUT 2,800 COMPANIES • They must meet requirements for profitability and size which assures that these companies will be the largest most profitable publicly held companies

  10. The American Stock Exchange • Also prestigious(AMEX) is loctaedin New York City • It has approximately 750 listed stocks • These companies tend to be smaller and more speculative than those on the NYSE

  11. Global Stock Exchanges • These are located throughout the world - - • Tokyo, Hong Kong, King Kong, Ding Dong ,Bing Bong, Bongo Bongo, Bombay,Gomboo,Yoo Hoo, Okay, Do-Say,Yazoo, Boo Hoo, Bally Hoo Bali Hai, Mai Tai

  12. Measures of Stock Performance • The Dow Jones Industrial Average - - • This is the most popular and widely publicized measure of stock market performance • It represents a sample of 30 constant stocks, though sometimes the stocks can change • No longer figured on a point-worth adollar

  13. Standard and Poor's 500 (S&p 500) It uses the price changes of 500 representative stocks as an indicator of overall market performance Because the sum of 500 stocks would be very large, it is reduced to an index number The S&P reports on stocks listed on the NYSE,AMEX and OTC (over the counter) markets

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