Ask the Fool
How important to a company is its stock price? — N. P., Mobile, Ala.
It matters, but perhaps not in the way that you think. Companies collect their money when they first sell their shares to the public (via an “initial public offering,” or IPO). Then those shares are traded between investors.
When you buy shares of McDonald’s through your brokerage, you’re buying them from an investor who wants to sell them. (It’s like baseball cards: The companies that print them get their money when the cards are sold, and after that they’re traded between owners, with their value rising or falling.)
If McDonald’s stock price falls significantly, so will its total market value. A competitor might look into buying the company, whether McDonald’s likes that or not. Also, low prices limit a firm’s flexibility. When McDonald’s price is high, if it tries to buy another company with its stock, the acquisition will require fewer shares. And if McDonald’s wants to issue a few more new shares to generate more money, it will get more for each share when the price is high.
Where can I find the CDs with the best interest rates?
— G. M., Topeka, Kan.
Click over to www.bankrate.com.
Last time we checked, one-year CD rates ranged from 0.75 percent to 1.36 percent, and five-year CDs ranged from 1.22 percent to 2.61 percent (in annual percentage yield). You don’t have to live in the state or city where you invest in a CD, so don’t think you’re stuck accepting your neighborhood bank’s 1 percent deal. A little research could pay off.
For more guidance on how best to invest your short-term savings, visit www.fool.com/savings and finance. yahoo.com/banking-budgeting.
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