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CH 9] Business 101 9-9

Figure 9.5 Types and Characteristics of Bonds

Convertible
Secured
Backed by specific Can be converted Serial
pledges of company into common stock Parts of a large issue that
assets at bondholder’s mature on different dates
option

Sinking-Fund Callable Unsecured
Yearly corporate (redeemable)
deposits of funds Gives issuing Backed by financial
sufficient to redeem corporation the option of reputation of issuing
bonds when they redeeming bond prior to corporation
mature its maturity date

Although institutional investors are the most important force in today's securities
market, the impact of private investors cannot be overlooked. Private investors,
typically purchase in much smaller quantities than institutional investors, and account
for more than $2 out of every $5 involved in securities markets. More than 51 million
people own corporate shares of stock representing 48 percent of all U.S. households.
There is a recognition that social security retirement will be less than desirable and the
average American wants a better retirement, so they are setting money aside in the
stock market for their financial future. It is good to set aside 10 percent of our earnings
into a “savings and investments” fund each time you receive a paycheck.
Private investors also utilize institutional investors to guide their investment, such
as their pension funds, 401k, mutual funds and insurance companies. Consequently,
institutional investors heed their individual investors.

Investment Motivations
Why do people and institutions invest? For some investors (typically individual
investors), the motive is speculation. Others seek growth, income, safety, or some
combination of all three.
Growth. Many people see the securities market as a way to increase their personal
wealth. Investors who choose growth as a primary goal will select companies whose
earnings have increased and are expected to continue growing faster than that of other
companies. In 1940, a share of IBM could be purchased for about $0.35. Today, the
stock, which has split several times over the years, changes ownership at prices well
over $110 per share. Growth-oriented investors are likely to own shares of companies
in industries such as electronics, drugs, and energy, which typically pay only small
amounts in the form of dividends. Most of their earnings are reinvested in the
company to finance further growth. Investors should benefit from this growth through
increases in the value of their shares.
Income. Some investors use stocks and bonds to supplement their income. When
income is the major goal, investors concentrate on the dividends of prospective
companies. An investor who purchased 10 shares of General Motors Corporation stock 9
in 1960 for $468 would have received dividend payments of more than $9,000 today.
Because dividends are paid from company earnings, investors consider the company's
past record for paying dividends, its current profitability, and its prospects for future
earnings. Purchasers of income stocks are likely to own shares of companies in
industries such as banking, insurance, and public utilities.
Hundreds of options are available for the income-oriented investor. Over four-
fifths of the companies with shares listed on the New York Stock Exchange have
common stock on which dividends are currently being paid. Thirty‑nine of these firms
have uninterrupted records of paying annual dividends for over 100 years. Included on
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