19-1

***

Functions ofFunctions of Securities MarketsSecurities Markets

• Long-Term Funding for Businesses

• Place to Buy/Sell Securities (Investments)

19-2

***

Capital MarketsCapital Markets

• Primary Markets (IPO's)Primary Markets (IPO's)

• Secondary MarketsSecondary Markets

19-3

***

Investment BankerInvestment Banker

• Assist Sale/Issue of Assist Sale/Issue of New SecuritiesNew Securities

• Underwrite issuesUnderwrite issues

• Sells to Institutional Sells to Institutional InvestorsInvestors

19-4

***

• Coupon/Interest RateCoupon/Interest Rate

• Denomination ($1,000)Denomination ($1,000)

• PrincipalPrincipal

• Maturity DateMaturity Date

• ClassesClasses

• Unsecured/DebentureUnsecured/Debenture

• SecuredSecured

Bond MarketBond Market

19-5

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BondsBondsAdvantagesAdvantages

• No VoteNo Vote

• Interest is Tax-Interest is Tax-DeductibleDeductible

• Temporary Temporary Source of FundsSource of Funds

• Can be repaid Can be repaid before maturity before maturity with call with call provisionprovision

DisadvantagesDisadvantages

• Increase DebtIncrease Debt

• Legal Obligation Legal Obligation to Pay Interestto Pay Interest

• Repaid on Repaid on Maturity DateMaturity Date

19-6

*** Special Bond FeaturesSpecial Bond Features

• Sinking FundSinking Fund

• CallableCallable

• ConvertibleConvertible

19-7

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Equity Financing

• Preferred or Common

• Investment never has to be repaid

• Not legally obligated to pay dividends

Debt Financing

• Secured or Debenture

• Must be repaid on maturity date

• Interest must be paid whenever specified

Debt vs. Equity FinancingDebt vs. Equity Financing

19-8

***

What is Stock?What is Stock?

• OwnershipOwnership

• CertificateCertificate

• Par ValuePar Value

• DividendsDividends

• Common vs. PreferredCommon vs. Preferred

19-9

***

StockStock

AdvantagesAdvantages

• No RepaymentNo Repayment

• No Legal ObligationNo Legal Obligation

• Does Not Create Does Not Create DebtDebt

DisadvantagesDisadvantages

• Voting RightsVoting Rights

• Dividends not Tax-Dividends not Tax-DeductibleDeductible

• Management Works Management Works to Keep Stockholders to Keep Stockholders HappyHappy

19-10

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Organized Organized Securities ExchangesSecurities Exchanges

• New York Stock New York Stock Exchange (NYSE)Exchange (NYSE)

• American Stock American Stock Exchange (AMEX)Exchange (AMEX)

• Over-the-Counter Over-the-Counter (OTC)(OTC)

• NASDAQNASDAQ

19-11

***

Investment CriteriaInvestment Criteria

• RiskRisk

• YieldYield

• DurationDuration

• LiquidityLiquidity

• Tax ConsequencesTax Consequences

19-12

***

Investing in StockInvesting in Stock

• Growth vs. IncomeGrowth vs. Income• Capital Gain vs. Capital Gain vs.

DividendDividend

• Blue Chip vs. PennyBlue Chip vs. Penny

• Market OrderMarket Order

• Limit OrderLimit Order

• Stock SplitStock Split

19-13

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How Stock Splits WorkHow Stock Splits Work100 shares of 100 shares of

ABC stock ABC stock selling at selling at

$80$80

100 shares @ 100 shares @ $40$40

100 shares @ 100 shares @ $40$40

100 shares 100 shares @ $45@ $45

100 shares 100 shares @ $45@ $45

2 for 12 for 1 Stock Split Stock Split

DeclaredDeclared

Lower Price Lower Price increases increases DemandDemand

Increased Increased demand demand

increases priceincreases price

How Much Profit Has Been How Much Profit Has Been Made?Made?

19-14

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Mutual FundsMutual Funds• Pool Investors’ Pool Investors’

MoneyMoney

• Best for Small Best for Small InvestorsInvestors

• Index FundIndex Fund

• DiversificationDiversification

• No-Load vs. LoadNo-Load vs. Load

• Open-End vs. Open-End vs. Closed-EndClosed-End

19-15

***

Types of InvestmentsTypes of Investments

TraditionalTraditional

• Stocks/BondsStocks/Bonds

• Gov’t Gov’t Securities/CDsSecurities/CDs

• Money Market or Money Market or Mutual FundsMutual Funds

• Real EstateReal Estate

High-RiskHigh-Risk• Stock on Stock on

MarginMargin

• Junk BondsJunk Bonds

• CommoditiesCommodities

19-16

***

Components for OptimalComponents for Optimal Portfolio Performance Portfolio Performance

• DiversificationDiversification

• TimelinesTimelines

• Safety & RiskSafety & Risk

• Income & Total Income & Total ReturnReturn

19-17

***

How does Buying Stock How does Buying Stock on Margin work?on Margin work?

Step 1Step 1

An investor An investor wishes to wishes to buy 100 buy 100

shares at shares at $100 per $100 per

shareshare

Step 2Step 2

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

investinvest

Step 3Step 3

The investor The investor finds he is finds he is able to buy able to buy the stock the stock

with a 40% with a 40% marginmargin

Step Step 44

The investor The investor puts up puts up

$4,000 and $4,000 and borrows borrows

$6,000 from $6,000 from the brokerthe broker

19-18

***

Measures of InvestmentMeasures of Investment

• Stock QuotationsStock Quotations

• Bond QuotationsBond Quotations

• Mutual Fund QuotationsMutual Fund Quotations

19-19

***

Stock QuotesStock Quotes

• % Change in YTD Price% Change in YTD Price

• High/Low PriceHigh/Low Price

• Company Name & Stock SymbolCompany Name & Stock Symbol

• Last Dividend Per ShareLast Dividend Per Share

• Dividend YieldDividend Yield

• P/E RatioP/E Ratio

• # of Shares Traded# of Shares Traded

• Closing PriceClosing Price

• Net Change- PriceNet Change- Price

19-20

***

Mutual Fund QuotationsMutual Fund Quotations

• Fund NameFund Name

• Net Asset Value Net Asset Value (NAV)(NAV)

• Net Change in Net Change in NAVNAV

• YTD ReturnYTD Return

• Long-Term Long-Term ReturnReturn