1. What exactly is a stock and why do companies sell stock in the first place?
Stocks are shares or equity shares which distribute ownership of the share in a corporation. Investors hope to meet their financial goals for the future by investing a small amount and letting it grow. Thus, a stock exchange is an organization that gives a marketplace for physical or virtual trading shares, other financial products like bonds and warrants in which investors can buy and sell shares from a variety of companies.
Foreign companies sell their stocks in the US and their homeland to extend their investor base. They also like to raise their money abroad.
2. What is the difference between a public and a private company?
Public companies are allowed to offer their securities in the form of stocks or bonds to be sold to the common public. The securities of a public company are owned by many investors whereas the shares of a private company are owned by relatively few shareholders. Sometimes, "public company" may refer to a government-owned corporation. "Public company" traditionally came to mean public ownership of assets and interests by and for the people as a whole. This notion is not very common in the United States. In contrast, privately held companies are usually controlled by the company founders or their families or a small group of investors. Another feature that describes private companies is that the small fraction of shareholders who possess the ownership don't trade the stock publicly.
3. What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average or simply called the Dow Jones refers to one of the several stock market indices formulated by 19th century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is a compilation of the indices aimed to measure the functioning of the industrial component in the American stock market. The averages are composed of 30 widely popular companies in the United States. Because there are stock splits and other adjustments that occur in the market, this average is currently a scaled average rather than the actual average of the prices of its component stocks as a form of compensation. In order to produce the value of the index, the sum of the component prices is divided by the divisor that alters with stock split or stock dividend.
4. What is a blue chip stock?
A blue chip stock is the stock of a company that is deeply rooted with no expanded liabilities and stable earnings. This term originally came from casino where blue chips would refer to counters of the highest value. Even during worse stages in the business, most blue chip stocks pay their normal dividends. In return, these stocks provide low yield, low risk and reliable returns. Blue chip stocks are also sometimes referred to as companies with large market capitalization values in their stocks.
5. What is the New York Stock Exchange and the NASDAQ?
New York Stock Exchange or "Big Board" is a stock exchange based in the New York City. In terms of dollar volume, it is the world's largest stock exchange with 2764 listed securities which is the second most securities of all stock exchanges. NYSE is conducted by NYSE Euronext, after NYSE merged with Archipelago Holdings and Euronext. One of the key features of NYSE is that it offers buyers and sellers to trade stock shares in companies of public trading efficiently. This allows an environment of price auction that would create the fairest possible price for both parties.
NASDAQ (National Association of Securities Dealers Automated Quotations) is the largest electronic screen-based equity securities trading market in the United States. On average, it trades more shares per day than any other stock market in the US with almost 3200 companies. In order to increase competition, it allows multiple market participants to trade through its Electronic Communication Networks. Along with NYSE, it will help in stopping domestic trade during sharp and sudden decline of the Dow Jones Industrial Average.
6. What is a mutual fund?
A mutual fund is a form of collective investments which takes capital from many investors and invests it in stocks, bonds, short-term money market instruments or other securities while managing it very professionally. The fund manager or portfolio manager exchanges the fund's underlying securities while understanding money gains or losses and collects the dividend or the interest income. The individual investors then receives the investment proceeds. The value of the share in a mutual fund is computed by dividing the total value of the fund with number of shares that are issued and outstanding.
7. What are some of the biggest companies on the stock market, how much is their stock?
Some of the world's biggest companies on the stock market includes-
- Citigroup: $29.69
- General Electric Company: $36.16
- American International Group Inc: $55.73
- Exxon Mobil Corporation: $85.95
- BP: $64.25
- Bank of America: $45.03
- HSBC: $77.17
- JP Morgan Chase & Co: $48.25
- IBM: $109.08
- Verizon Communications: $38.75
(The above values are the last values of Feb. 01, 08 at closure of the market in NASDAQ and NYSE.)
8. What is the PE ratio of a stock?
PE (price-to-earnings) ratio in a stock is the evaluation of the price paid for a share relative to the income or profit attained by the firm per share. A higher value of PE ratio indicates that investors are paying more for each unit of income. It is simply calculated by dividing the price for each share by earnings for each share. The reciprocal of PE ratio gives the earnings yield.
9. What is a stock dividend?
Stock dividend is the name given to the payment that shareholders receive after a profit is earned by the company where they invested. When the profit is again put back to the company for more profit, it become to be known as retained earnings. Dividend is seen as a division of an asset among shareholders. Sometimes, companies keep a portion of their earnings and pay the remainder as dividend.