20-1 19-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All...

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.20-119-1McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter

1919Securities Markets:

Financing and Investing

Opportunities

19-1





Capital Markets

• Primary Markets (IPO's)

• Secondary Markets





Stock Market Fluctuations

Bull Market Bear Market





Stock Exchanges

Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.





Stock Exchanges

• Organization whose members can buy and sell (exchange) securities for companies and investors

– Brokerage firms purchase memberships (seats) on the exchanges






Organized Securities Exchanges

New York Stock Exchange (NYSE)

American Stock Exchange (AMEX)

NASDAQForeign Stock

Exchanges





Foreign Exchanges• Japan ----------- NIKKEI • Germany ------- DAX• France ---------- CAC-40• Britain ---------- FTSE 100• Euro Zone ----- DJ Euro Stoxx• Hong Kong ---- Hang Seng• India ------------- Bombay Sensex






BONDS

(Debt)





$ Principal

$ Interest Rate

$ Term$ Issue Date

$ Maturity Date

Bond Terms





$ Classes¢ Unsecured

¢ Debenture

¢ Secured¢ Mortgage

Bond Classes





Special Bond Features

• Sinking Fund

• Callable

• Convertible





STOCKS

(Equity)





What is Stock?

• Ownership• Dividends• Common and

Preferred





Issuing Common Stock• Most basic form of ownership

and includes the rights:– To vote for company’s board of

directors and on important issues– To share in the company’s profits

through dividends– Preemptive rights give common

stockholders first right to purchase any new shares of common stock






Issuing Preferred Stock• Stock that gives its owners

preference in payment of dividends and earlier claim on assets

• Does not include voting rights

• May be called a hybrid investment (stock/bond)






Issuing Preferred Stock• Differences from Common

Stock:– Par value is basis for dividend

firm is willing to pay– Dividends on preferred stock

must be paid in full before any common stock dividends can be paid






Issuing Preferred Stock

Preferred stocks and Bonds are rated according to Risk by Standard & Poor’s and Moody’s






Issuing Preferred Stock• Differences between Preferred

Stock and Bonds:– Preferred stock dividends do not

legally have to be paid– Stock never has to be repurchased– Both types increase in market

value, but stocks generally increase at a higher percentage than bonds






Issuing Preferred Stock• Special Features of Preferred

Stock:– Preferred stock can be callable– Preferred stock can be convertible– With cumulative preferred stock

missed dividends can be accumulated if not paid






Stock

Advantages• No Repayment• No Legal

Obligation• Does Not

Create Debt

Disadvantages• Voting Rights• Dividends not

Tax-Deductible• Management

Works to Keep Stockholders Happy





Features of Stock

• Market Order• Limit Order





Stock Splits





How Stock Splits Work 100 shares of

ABC stock selling @ $99

100 shares $33@

100 shares $33@

100 shares $33@

100 shares @$37

100 shares @$37

100 shares @$37

3 for 1 Stock Split

Declared

Lower Price increases Demand

Increased demand

increases price

How Much Potential Profit Has Been Made?





Buying Stock On Margin





Buying Stock on MarginHow does the investor make money?

Step 1

An investor wishes to buy 100

shares at $100 per

share

Step 2

However, the investor has only $4,000 available to

invest

Step 3

The investor finds he is able to buy the stock

with a 40% margin

Step 4

The investor puts up

$4,000 and borrows

$6,000 from the broker





Any financial paper has stock quotes that will look something like the image below:

http://www.investopedia.com/university/stocks/stocks6.asp





Stock Quotes• % Change in YTD Price• High/Low Price – 52 weeks• Company Name & Stock Symbol• Last Dividend Per Share• Dividend Yield• P/E Ratio• # of Shares Traded – in 100s• Closing Price• Net Change - Closing Price

Previous Trading Day





Stock Market Indicators

• Dow Jones Industrial Average (DJIA)–30 Industrial, 20 Transportation, 15 Utility

• Standard & Poor’s 500– 400 Industrial, 40 Financial, 40 Utility,

20 Transportation

• NASDAQ• Big Charts.com

http://bigcharts.marketwatch.com/

20-1 19-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All...

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Transcript of 20-1 19-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All...