Sometimes the stock that initially sold for 10 will

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: it is usually traded on a stock exchange or in an electronic stock market. Sometimes the stock that initially sold for $10 will rise in price and sometimes it will fall like a rock. It all depends on what people in the stock market think the company that initially issued the stock will do in the future. 434 Chapter 16 Stocks and Bonds If they think the company is destined for big earnings, the stock will likely rise in price. If they think the company is destined for losses, or only marginal earnings, the stock will likely fall in price. In a way, you can think of trading stock in much the same way you think about trading baseball cards, or paintings, or anything else. The price depends on the forces of supply and demand. If demand rises, and supply is constant, then the price of the stock will rise. If demand falls, and supply is constant, then the price of the stock will fall. Sometimes people buy certain stocks because they hear that other people are buying the stock and because they think that the stock is “hot.” In other words, it is popular and everyone wants it. In the 1990s, some of the Internet stocks fit this description. Stocks such as Yahoo!, Amazon.com, and eBay were bought because people thought the Internet was the wave of the future and almost anything connected with the Internet was destined for great profit. More often, though, people buy a particular stock if they think that the earnings of the company that initially issued the stock are likely to rise. After all, remember that a share of stock represents ownership in a company. The more profitable that company is expected to be, the more likely people are going to want to own that company, and therefore the greater the demand for the stock of that company. Suppose William Welch started a company in 1895. Through the years, the company was passed down to family members. In 2005, the family members running the company want to expand it to two, three, or four times its current size. Where might they get the money for this expansion? One way...
View Full Document

This document was uploaded on 01/16/2014.

Ask a homework question - tutors are online