Intro. to the Stock Market

• What exactly is a stock and why do companies sell stock in the first place?

A= In financial markets, stock is the capital raised by a corporation through the issuance and distribution of shares. Companies sell stock in the first place because the owners of a company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use.

• What is the difference between a public and a private company?

A= The difference between a public and a private company is that a public company is one whose stock is traded by the public, e.g., listed on an exchange such as the New York Stock Exchange or NASDAQ. Therefore, it probably has hundreds or thousands of co-owners.

A private company is one whose stock is generally held by one shareholder or a small group of shareholders. Its owners don't have to reveal much about their business, and most of us can't invest in it.

• What is the Dow Jones Industrial Average?

A= The Dow Jones Industrial Average (also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth century Wall Street Journal editor Charles Dow. It is the oldest continuing U.S. market index. This is the best known U.S. index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, is a barometer of how shares of the largest U.S. companies are performing.

• What is a blue chip stock?

A= A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities. Most blue chip stocks pay regular dividends, even when business is faring worse than usual. Many blue chips are components of popular indices, such as the Dow Jones Industrial Average and the S&P 500.

• What is the New York Stock Exchange and the NASDAQ?

A= The New York Stock Exchange (NYSE), nicknamed the "Big Board," is a New York City based stock exchange. It is the oldest and largest stock exchange in the world by dollar volume. The New York Stock Exchange provides an efficient method for buyers and sellers to trade shares of stock in companies registered for public trading.

The NASDAQ is the largest electronic screen-based trading market in the United States. With approximately 3,200 companies, it lists more companies and on average trades more shares per day than any other U.S. market. It was founded in 1971 by the National Association of Securities Dealers (NASD). It is owned and operated by The NASDAQ Stock Market, and is monitored by the Securities and Exchange Commission (SEC).

• What is a mutual fund?

A= Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace.

• What are some of the biggest companies on the stock market, how much is their stock?

A= Some of the biggest companies on the stock market and their stock (in billion) are the following:

• Chevron= $207.2
• Toyota Motor= $205.5
• Bank of America= $122.6
• AT&T= $104.5
• Honda Motor= $95.1
  

• What is the PE ratio of a stock?

A= The PE ratio of a stock is a valuation ratio of a company's current share price compared to its per-share earnings. A higher P/E ratio means that investors are paying more for each unit of income.

• What is a stock dividend?

A= A stock dividend is payments made by a company to its shareholders. When a company earns a profit, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders of the company as a dividend.