Now that you know what a company is, learn how a piece of one ends up in your portfolio.
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A public company is a company that issues stock for sale to the public. It issues stock to raise money to develop new products and services and support the expansion of its current business. When you purchase a company's stock, you own part of the company that issued it. Whether you own one share or 100 plus shares, you are entitled to the same rights and benefits (of course, the more shares you have, the more influence you have in company decisions). If the company's stock price rises above what you paid for it, your investment has earned money. If the price falls below what you paid for it, your investment has lost money. However, you risk only the money you invested.
A private company can be owned by an individual, a family, or a small group of investors. It does not raise money by selling stock to the public. A private company raises money through bank loans, venture capitalists, and other sources of capital. Mars Incorporated, maker of M&M's and other popular candies, is an example of a private company. It is owned by the Mars family.
Most companies, including The Hershey Company, begin as small private companies. However, as a company grows and needs capital for expansion, its owners must decide how to raise money. The Hershey Company decided that instead of borrowing from banks or venture capitalists like Mars Incorporated, they would "go public" and sell stock to raise money for growth.
When a company decides to go public, its management meets with investment bankers, who underwrite the company's stock offering, known as an IPO (Initial Public Offering). The investment bankers buy all the shares that will be publicly offered at a set price (the primary market). In other words, they underwrite the IPO. The investment bankers then sell the stock to the public (the secondary market) in the hopes of making a profit. When you buy and sell stock in the Stock Market Game, you do so on the secondary market.
In addition to preparing a prospectus, underwriters also prepare a tombstone ad, an announcement that appears in financial publications such as The Wall Street Journal. Underwriters may also organize meetings with people who buy large amounts of stock for institutions such as pension funds, mutual funds, banks, or insurance funds, hoping they will buy shares in the company.
In order to sell its stock, a company must also register with the Securities and Exchange Commission (SEC) before going public. Companies generally offer two types of stock: common and preferred.
An important difference: the price of preferred stock tends to be more stable, changing little over time, compared to common stock.
Stocks are bought and sold on exchanges. The Stock Market Game™ program is an electronic platform on which students buy and sell simulated shares of common stock listed on the two major U.S. stock exchanges: the New York Stock Exchange (NYSE) and the NASDAQ.
Tap a card to flip it and reveal the definition.
By the end of this session, you will be able to:
Decide whether each statement is true or false, then reveal the answer.
All stock prices used in this activity are hypothetical and not meant to reflect current prices.
It began in 1911 in the kitchen of Frank and Ethel Mars in Tacoma, Washington. In 1920 they produced the MILKY WAY bar, and the family company went on to create SNICKERS and M&M'S. By the 1970s, Mars spanned snack food, food, pet care, and vending, growing into a multi-billion dollar business built on brands like TWIX, PEDIGREE, WHISKAS, CESAR, SHEBA, and UNCLE BEN'S.
Raised in rural Pennsylvania and nearly bankrupt at age 30, Milton S. Hershey began as a small subsidiary of his Lancaster Caramel Company. After years of work, he became the first American to develop a formula for manufacturing milk chocolate. Hershey Foods, unlike the private Mars Company, is publicly traded, meaning members of the public can become part owners by purchasing stock.
Write equations (=) or inequalities (<, >, ≤, ≥) that represent each scenario. Define your variables. Ignore broker's fees in the first three problems.
For Q4–8, include a broker's fee of 2% on each transaction.
| Month | Price/Share | Value (× 3,850) | Gain/Loss | Result |
|---|---|---|---|---|
| March | $26.45 | $101,832.50 | — | — |
| April | $27.10 | $104,335.00 | $2,502.50 | Profit |
| May | $25.95 | $99,907.50 | −$1,925.00 | Loss |
| June | $22.90 | $88,165.00 | −$13,667.50 | Loss |
| July | $20.94 | $80,619.00 | −$21,213.50 | Loss |
| August | $21.19 | $81,581.50 | −$20,251.00 | Loss |
| September | $24.91 | $95,903.50 | −$5,929.00 | Loss |
| October | $26.45 | $101,832.50 | $0.00 | Even |
| November | $29.23 | $112,535.50 | $10,703.00 | Profit |
| December | $29.49 | $113,536.50 | $11,704.00 | Profit |
| January | $28.18 | $108,493.00 | $6,660.50 | Profit |
| February | $26.85 | $103,372.50 | $1,540.00 | Profit |
| March | $30.58 | $117,733.00 | $15,900.50 | Profit |
| April | $29.58 | $113,883.00 | $12,050.50 | Profit |
| Date | Value |
|---|---|
| 4/10/2018 | $100,000 |
| 4/11/2018 | $103,500 |
| 4/12/2018 | $102,970 |
| 4/13/2018 | $100,340 |
| 4/14/2018 | $99,730 |
| 4/17/2018 | $98,980 |
| 4/18/2018 | $99,102 |
| 4/19/2018 | $104,250 |
| 4/20/2018 | $103,590 |
| 4/21/2018 | $102,111 |
| 4/24/2018 | $101,553 |
| 4/25/2018 | $103,211 |
| 4/26/2018 | $104,006 |
The portfolio dipped in mid-April to a low near $98,980 on 4/17, then recovered to close near $104,006 by 4/26. Values plotted on a $80,000–$120,000 vertical scale keep the day-to-day swings readable.
Jennifer bought 800 shares of Brown Oats Inc. (BOI) at $16.65 a share on September 21. On September 28, she sold 400 shares at $16.52. She bought another 300 shares on October 3 at $16.01. She sold all her remaining BOI stock at $17.09 on October 12.
Jacie's SMG group bought 230 shares of DuPoe Inc. on December 21 for $48.98 a share. They sold half their stock on December 27 at $49.19. They rebought 200 shares on January 5 at $48.05, then sold all their shares on January 17 for $50.72 per share.