He borrows the stock from someone who currently owns

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Unformatted text preview: rs who are trying to benefit from a falling stock price. For example, suppose Brian believes that stock X will soon fall in price. He borrows the stock from someone who currently owns the stock with the promise to return the stock later. He then sells the (borrowed) stock, hoping to buy back enough shares later at a lower price to return to the original owner. A name given to stocks issued by companies that produce military hardware (tanks, airplanes, etc.). Why Do People Buy Stock? Millions of people, in countries all over the world, buy stock every day. Why do they do it? They do it based on a couple of reasons. Some people buy stocks for the dividends, which are payments made to stockholders based on a company’s profits. Suppose company X issued 1 million shares of stock purchased by different people. Each year the company tabulates its profit and loss, and when it earns a profit, it divides up much of the profit among the owners of the company as dividends. This year’s dividend might be $1 for each share of stock a person owns. So, if Florian owns 50,000 shares of stock, she will receive a dividend check for $50,000. EXAMPLE: dividend A share of the profits of a corporation distributed to stockholders. The other reason to buy stock is for the expected gain in its price. Stockholders can 436 Chapter 16 Stocks and Bonds make money if they buy shares at a lower price and sell at a higher price. Kristor buys 100 shares of Microsoft stock today. He thinks that the company is going to do well and that a year from now he can sell the stock for as much as $50 more a share than he purchased it. In other words, he hopes to earn $5,000 on his stock purchase. EXAMPLE: People also sell stock for many reasons. Smith might sell her 100 shares of IBM because she currently needs the money to help her son pay for college. She also might sell the stock in order to help put together a down payment for a house. Another common reason for selling stock is that the stockholder thinks that the stock is likely...
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This document was uploaded on 01/16/2014.

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