Stocks Chapter 3.3

What are dividends?

Cash distributed to companies shareholders from the companies profits.

What role does the brokerage play in the process?

Connects the buyer and seller.

(a) What is the difference between an individual and an institutional investor?

Institutional Investors- Professional investors that trade large volumes of stocks on behalf of large institutions. An example of such an institution is a huge pension fund. Mutual funds, which we will discuss later in the chapter, are another good example of institutional investors. Individual Investors- Smaller, less experienced investors that trade smaller amounts

In what circumstance might an investor prefer stocks that do not pay dividends?

Investors that own growthier companies likely would rather not receive a dividend and would rather the company reinvest all of their profits back into future growth

What are the basic steps of a stock transaction?

On the NYSE, you tell your brokerage firm you want to buy a stock and how many shares. Then, the order will be sent to the floor trader that handles the stock. The floor trader will go to the area of exchange and match the buyer and seller. Or most of the time your brokerage firm can submit electronically with the price you are willing to pay.

Would these two types of investors likely apply similar or different standards for choosing a stock? Explain.

They would likely apply different standards for choosing a stock because Institutional Investors hope to make a profit for their large clients and Individual Investors hope to make a profit for themselves.