March 22, 2017

Stocks and Bonds

Stocks:

• You Own 

Bonds: Loans, or IOU's, that represent debt that the government or a corporation must repay to an investor

• You Loan
• Bond holder has no ownership of the company
• If a corporation issues and then sells a bond:
• Liability for corporation
• Asset for the buyer
• If that corporation issues a 10k bond with a 10 year term and a 5% interest:
• Nominal Interest Rate @ time of issue: 5%
• Nominal Interest Rate falls to 3% bond increases
• Nominal Interest Rate rises to 8% bond decreases

Stockowners can earn a profit in 2 ways:

• Dividends: Portions of a corporation's profits; paid out to stockholders 
• Higher corporate profit, the higher the dividend
• Capital Gain: Earned when a stockholder sells stock for more than he or she paid for it.
• A stockholder that sells stock at a lower price then the purchase price suffers capital loss. 

Federal Reserve System:

• "The FED" or "Central Bank"
• Stabilize the economy and maximum employment