you are buying a small slice of the firm's ownership from the existing owner—and the firm that originally

issued the stock is not a part of this transaction.

Second, when a firm decides to issue stock, it must recognize that investors will expect to receive a rate of

return. That rate of return can come in two forms. A firm can make a direct payment to its shareholders, called

a dividend. Alternatively, a financial investor might buy a share of stock in Wal-Mart for $45 and then later sell

it to someone else for $60, for $15 gain. We call the increase in the stock value (or of any asset) between when

one buys and sells it a capital gain.

Third: Who makes the decisions about when a firm will issue stock, or pay dividends, or re-invest profits? To

understand the answers to these questions, it is useful to separate firms into two groups: private and public.
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