Section 1.6: STOCK TRANSACTIONS. Learn the basic vocabulary of buying and selling shares of stock. Compute gains and losses from stock trades.

Transcription

1 Section 1.6: STOCK TRANSACTIONS OBJECTIVES Learn the basic vocabulary of buying and selling shares of stock. Compute gains and losses from stock trades Cengage Learning. All Rights Reserved Key Terms portfolio round lot odd lot trade gross capital gain gross capital loss Chapter 1: The Stock Market 1

2 Stock Market Transactions and Vocabulary 1. Portfolio is a grouping of all the stocks a person currently owns Portfolio changes when stocks are bought and sold. 2. When a stock is bought and sold, a trade is made with another stockholder. If an investor wants to buy 100 shares of AAPL, the investor is buying shares from another shareholder, notfrom Apple. Only the first purchaser of the stock bought the shares directly from Apple. Stock Market Transactions and Vocabulary 3. Round lots are stock transactions that occur in multiples of 100 shares. Most stock trades are round lots. 4. Odd lots are stock transactions of less than 100 shares. 5. Mixed lots are stock transactions of more than 100 shares, however, not a multiple of 100 (not divisible by 100). 6. A gross capital gain is the difference between the selling price and purchase price. 7. A gross capital loss occurs when the stock is sold for less than it was purchased for. When you buy a stock, even if the value increases, you will not make a profit until you actually sell the stock. You must report capital gains and losses to the Internal Revenue Service (IRS) for tax purposes. (Chapter 7) Chapter 1: The Stock Market 2

3 What do you think? What are some reasons that a stock price fluctuates? NBC Learn Video Air Date: Example 1 Several years ago, Stacy purchased a stock for $7,241. Last week, she sold the stock for $9,219. What was her gross capital gain or loss? Example 2 Ari used money he received as a gift for high school graduation to purchase $4,000 worth of shares of stock. After he graduated from college, he needed money to buy a car, so he sold the stock for $2,433. What was his capital gain or loss? Chapter 1: The Stock Market 3

4 Example 3 Five years ago, Rachel bought 300 shares of a cosmetics company s stock for $34.87 per share. Yesterday she sold all of the shares for $41 per share. What was her capital gain? Example 4 Chandler bought 125 shares of stock for $68.24 per share. He sold them nine months later for $85.89 per share. (a) Was his transaction completed as a round lot or an odd lot? (b) Did Chandler have a capital gain or loss? (c) Express the capital gain/loss as a percent, rounded to the nearest tenth of a percent. Chapter 1: The Stock Market 4

5 Example 5 Joey purchased 200 shares of a particular stock for $60 per share three years ago. The stock increased in price that would earn him a 140% capital gain. He decided to sell half of the 200 shares. (a) Determine the capital gainearned on each of the shares that were sold. (b) Determine the capital gain earned on allof the shares that were sold. (c) Determine the total valueof the shares that were sold. (d) Joey keeps the remaining shares for several years, however, the company goes bankrupt and the shares become worthless. Did the original investmentresult in a capital gain or capital loss? Example 6 Ross paid $6,100 for shares of a corporation that manufactured fidget spinners. He sold it for $3,450. Express his gain or loss as a percent of the original purchase price. Round to the nearest tenth of a percent. Example 7 Monica bought shares in Citigroup Corporation in early 2016 for $38.85 per share. She sold them later that year for $59.43 per share. Express her gain or loss as a percent of the purchase price. Round to the nearest percent. Chapter 1: The Stock Market 5