Question

learn it!!
video: how the stock exchange works (for dummies)
infographic: the stock market - explained
youve probably heard about the stock market, but what is it and how does it work? watch this video and
read this infographic to learn what it means to buy a stock. then, answer the questions.

1. how does a company benefit by having their stock listed on an exchange?

1. as an investor, what are the risks involved with buying a companys stock?

1. what are the two ways that investors can make money from stocks?

Explanation:

1. For listed companies, the key benefits are access to large amounts of capital by selling shares, increased public visibility and credibility which can attract customers and partners, and easier ability to raise additional funds in the future through secondary offerings.
2. Investors face several risks: market risk where stock prices drop due to broader market declines; business risk if the company performs poorly (e.g., lost revenue, management issues); liquidity risk if they cannot sell shares quickly without lowering the price; and inflation risk where returns fail to outpace inflation.
3. The two primary ways investors profit from stocks are capital appreciation (selling shares at a higher price than the purchase price) and receiving dividend payments (regular distributions of company profits to shareholders).

Answer:

1. A company benefits by gaining access to large amounts of capital via share sales, boosting its public credibility/visibility, and having easier access to future funding through secondary offerings.
2. As an investor, risks include market-wide price drops (market risk), poor company performance (business risk), inability to sell shares quickly (liquidity risk), and returns failing to beat inflation (inflation risk).
3. The two ways are:

• Capital appreciation: Selling stocks for a higher price than purchased.
• Dividends: Receiving regular profit distributions from the company.