GOALS BUSINESS MATH© Thomson/South-WesternLesson 7.6Slide 1 7.6Stocks Calculate the cost of stock purchases Calculate annual stock dividends Calculate

GOALS

Lesson 7.6 Slide 1BUSINESS MATH © Thomson/South-Western

7.6 Stocks

Calculate the cost of stock purchases Calculate annual stock dividends Calculate the yield on stock investments Calculate the proceeds from the sale of

stock


Purchasing Stock

Companies issue shares of stock to raise money, which might be used to expand or to offer new products.

Investors who buy the shares are called stockholders.

Each stockholder gets a stock certificate that shows on its face the number of shares it represents.


BUSINESS TIPBUSINESS TIP

Stockholders are also called shareholders.


Sample Stock Certificate


Market Value

The price at which a stock sells is called the market price or market value and is shown in stock tables in many daily newspapers.


Sample Stock Table


Broker’s Commission

Stockholders usually buy and sell their shares through a broker.

When you buy stock through a broker, the total cost of the stock is the market price of the stock plus the broker’s commission.

Market Price + Commission = Total Cost


Amount of a Broker’s Commission

The amount of a broker’s commission depends on the services the broker provides, the price of the stock and the number of shares bought.

Discount and online brokers usually charge lower commissions but give less service to customers than full service brokers.


Stock Dividends

Unlike bondholders’ investments, the money invested in stock does not have to be repaid.

Stockholders are owners of the company, not lenders.

However, stockholders have a right to share in company profits.

These profits are distributed to shareholders as dividends and are usually paid quarterly.


Classes of Stock

Many corporations issue two classes of stock—common stock and preferred stock. A corporation sets a preferred stock’s dividends when it is

first issued. Common stock is the ordinary stock of a corporation and

does not have a set dividend.

There is no guarantee that dividends will be paid to either class of stockholder.

When dividends are paid, they go first to shareholders of preferred stock.


Stock Yields

The yield, or rate of income, received from an investment is found by dividing the annual income from the investment by the amount invested.

For stocks, the investment is the total cost of the stock, including any expenses or commission paid in obtaining the stock.

The income is the amount of annual dividends.

Yield = Annual Dividends ÷ Total Cost of Stock


Stock Sales

When you sell stock through a broker, you pay a commission.

You may also pay charges such as a service fee and a Securities and Exchange Commission (SEC) fee.

Your state may charge a transfer tax. When you buy stock, you do not pay a

transfer tax or an SEC fee.


Net Proceeds from Sale of Stock

When you sell stock, the net proceeds is the market price less the commission and all other charges (service fee, SEC fee, transfer tax).

Market Price – (Commission + Other Charges) = Net Proceeds


$3765.15

$7684.55

$9069.15







Documents

GOALS BUSINESS MATH© Thomson/South-WesternLesson 7.6Slide 1 7.6Stocks Calculate the cost of stock purchases Calculate annual stock dividends Calculate