What is a 'Stock'

A stock (also known as "shares" and "equity) is a type of security that signifies ownership in
a corporation and represents a claim on part of the corporation's assets and earnings.

The cost of the stocks depends on the status of company. Big company usually have higher cost
compared to those smaller company

A corporation is a business entity that is owned by its shareholder(s), who elect a board of
directors to oversee the organization's activities.

BREAKING DOWN 'Stock'

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and
earnings. In other words, a shareholder is an owner of a company. Ownership is determined by
the number of shares a person owns relative to the number of outstanding shares.

Outstanding shares refer to a company's stock currently held by all its shareholders,

For example, if a company has 1,000 shares of stock outstanding and one person owns 100
shares, that person would own and have claim to 10% of the company's assets.

How do you purchase these stocks?

Each country has its own stock exchange where stocks are sold and bought. Usually, people will
go through a stock brokerage company to make sales and purchases on this stock exchange.
Each stock has a price dependent on how the company is performing. Each stock brokerage
company also adds a transaction fee per trade.

In order to buy stocks, you can also either use an online broker, or seek the assistance of a
stockbroker who is licensed to purchase securities on your behalf.

1. Online Broker
- mostly used by people nowadays
- the cost is usually based on a per transaction or per share basis, allowing you to open an
account with relatively little money.
i. You sign up for an account online
ii. Transfer funds into it
kind of like opening a bank account, only much simpler.
iii. Once your account has funds in it, you can place an order. You can either pick the
stocks you know you want, or use the search feature to filter stocks by criteria.

2. Full-Service Brokers or Traditional Human Stockbrokers

 - these people take the time to sit down with you and get to know you personally and
financially.
- they look at factors such as: marital status, lifestyle, personality, risk tolerance, age (time
horizon), income, assets, debts and more.
- work with you to develop a financial plan best suited to your investment goals and
objectives.
- they can basically give any type of financial advice, hence “full service”
- they can help you manage all of your financial needs now and for the rest of your life, if
need be.

Why do people buy and sell stocks?

The short answer is to make money. Money can be made by selling stocks you have purchased at
a lower price.

DIVIDENDS

The corporation can distribute all or some of the profits in the form of dividends.

A dividend is a distribution of corporate profits to the corporation's shareholders.

Dividends are normally paid on a quarterly basis; however, a distribution will be dependent on
profits and must be approved by the corporation's board of directors.

Cash Dividends

Dividends can be paid in the form of cash or a deposit directly into a shareholder's brokerage
account.

Stock Dividends

Dividends can also be distributed by issuing additional shares of stock.

How can we determine the dividends that I will receive?

Note that dividends are usually distributed to shareholders per share. This means that
shareholders receive varying amounts depending on the number of shares each owns.

What is a 'Common Shareholder'?

A common shareholder is an individual, business or institution that holds common stocks in a
company, giving the holder an ownership stake in the company. This will also give the holder
the right to vote on corporate issues such as board elections and corporate policy, along with the
right to any common dividend payments.

Common shareholders might also be granted preemptive rights, which would let them buy
additional shares, for instance in a secondary offering, before they are made available for public
purchase on the markets.
The main advantage to common shareholders is that common stock often yields a higher return
than other types of investments. The main disadvantage is that common stock is a risky
investment.
Also, in a corporate bankruptcy, common shareholders won't receive proceeds until creditors
and preferred shareholders are paid.

What is a 'Preferred Stockholder'

A preferred shareholder/stockhois an individual, business or institution that holds preferred

stocks in a company. A preferred stock is a class of ownership in a corporation that has a higher
claim on its assets and earnings than common stock.

These shareholders are normally assured a fixed dividend distribution throughout the life of the
corporation.

The advantage to preferred shareholders is the guarantee of a fixed dividend, but this guarantee is
not absolute. The dividend distribution is dependent on the corporation's financial ability to pay
dividends at that time.

Preferred shareholders are issued dividends before common shareholders.

Preferred shareholders receive proceeds after creditors but before common shareholders.

A disadvantage is that the stock may be called by the corporation. This means that the
corporation can purchase preferred stock from shareholders at any time and for any reason,
but usually at a price per share that is higher than what the shareholders paid.

Also, preferred shareholders don't usually enjoy the same voting rights as common shareholders

Bonds

A bond can be described as a loan to be repaid at a future time with interest.

Difference of Bonds and Loan

Bonds are similar to loans, only instead of borrowing money from a bank or single lending
source, a company instead borrows money from the public.

How Bonds Work

When companies or other entities need to raise money to finance new projects, maintain ongoing
operations, or refinance existing debts, they may issue bonds directly to investors instead of
obtaining loans from a bank.

The indebted entity (issuer) issues a bond that contractually states the interest rate that will be
paid and the time at which the loaned funds (bond principal) must be returned (maturity date).

The interest rate, called the coupon rate or payment, is the return that bondholders earn for
loaning their funds to the issuer.

The issuance price of a bond is typically set at par. The actual market price of a bond depends on
a number of factors including the credit quality of the issuer, the length of time until expiration,
and the coupon rate compared to the general interest rate environment at the time.

Characteristics of Bonds

Most bonds share some common basic characteristics including:

 Face value is the money amount the bond will be worth at its maturity, and is also the
reference amount the bond issuer uses when calculating interest payments.
 Coupon rate is the rate of interest the bond issuer will pay on the face value of the bond,
expressed as a percentage.
 Coupon dates are the dates on which the bond issuer will make interest payments.
Typical intervals are annual or semi-annual coupon payments.
 Maturity date is the date on which the bond will mature and the bond issuer will pay the
bond holder the face value of the bond.
 Issue price is the price at which the bond issuer originally sells the bonds.

Interest and Yield

Yield

The actual interest earned on a bond. This yield is based on the amount you actually paid for the bond.

par value∗interest
Yield=
price paid for thebond (issue price)

Face value of the bond and interest are fixed but the bond’s price can varied because of many factors
which will not be discuss today.
Interest

The stated interest of the bond

Calculating Interest Payments

We take the par value or face value of the bond and multiply it by the stated interest. So, each year,
depending on the payment schedule of the bond, could be paid out in two semiannual payments or one
annual payment. Usually, it's the two semiannual payments or every six months.

How Much Is the Bond Worth?

We can multiply the interest earned each year by the number of years a person has kept this bond.