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12 471.13 Winter 2012

IB. 12 471.13 Winter 2012. Securities & Investment. Accounting & Value. How do we know if we’re succeeding now? we’ll succeed in the future?. What’s our business worth?. Value. Future focus revenue generation relative to other revenue options. 5. 5. 35. 35. 35. 35. 35. 1502.

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12 471.13 Winter 2012

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  1. IB 12 471.13 Winter 2012

  2. Securities & Investment

  3. Accounting & Value • How do we know if • we’re succeeding now? • we’ll succeed in the future? What’s our business worth?

  4. Value • Future focus • revenue generation • relative to other revenue options 5 5 35 35 35 35 35 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511

  5. Value • Did we make a wise investment? 14% 14% 14% 5 5 5 35 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511

  6. Value • Did we make a wise investment? -35 5 2 12 35 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511

  7. Value • Did we make a wise investment? 25 5 2 12 -3 0 0 0 11 35 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511

  8. Value • Did we make a wise investment? • The answer depends on • amount • certainty • variability rate risk β • what other investments are offering

  9. Value • Did we make a wise investment? • The answer depends on • amount • certainty • variability relative rate relativerisk relativeβ • what other investments are offering

  10. 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511 Value Varies Let’s pretend there’s a stock market • 1502 • Venice Import-Export issues 7 shares • valued at 5 ducats each 5

  11. Value • Did we make a wise investment? • answer based on investor’s subjective • perceptions • desires “appetite for risk” fear & greed  future focus

  12. Stock Exchanges • Amsterdam • 1698 London • US

  13. Stock Exchange • voluntary • private • seats

  14. Stock Exchange • sell & purchase • stocks, bonds, “other” • Primary market • newly issued • Secondary market • previously issued

  15. Stock Exchange jargon alert! • Stock = Shares • Bonds • “other instruments” “securities”

  16. Securities markets jargon alert! • Equity financing • stocks • Debt financing • bonds

  17. Securities markets jargon alert! • Equity financing • common stocks • par value • issuing price • market value • book value • dividends • capital gains

  18. Buying & Selling Stocks jargon alert! • Purchase or sale of shares • Round lot • in units of 100 • Odd lot • in units of other than 100

  19. Buying & Selling Stocks jargon alert! • Market order • buy or sell a security • at current market price • Limit order • buy a security • if price <= certain level • Stop order • sell a security • if price falls below certain level

  20. Securities markets jargon alert! • Debt financing • bond • written commitment • borrower will pay • firm • lender will get • investor • stated future date • principal + interest

  21. Securities markets jargon alert! • Debt financing • bonds • variations • maturity • payment date • tax status • potential yield • interest rate • terms of contract

  22. Securities markets jargon alert! • Debt financing • bonds • as many different kinds as you can imagine

  23. Securities markets jargon alert! • Debt financing • bonds • Secured • Unsecured • debentures • Bearer bonds • coupon bonds • Registered bonds

  24. Securities markets jargon alert! • Debt financing • bonds • Retiring Bonds • Callable bonds • Sinking fund provision • Serial bond • Convertible bond

  25. Securities markets jargon alert! • participants • Investment bankers • primary market • Stockbrokers • secondary market • Full-service brokerage • Discount brokerage

  26. Securities markets jargon alert! • regulations • Brokers licensed • Securities registered • Prospectus • Insider trading

  27. Securities markets jargon alert! • Margin Trading • down payment • broker borrows from bank • secured by stock • broker charges investor interest • investor pays off financing • when they sell the stock • hopefully at a profit

  28. Securities markets jargon alert! • Short Sale • sell first • buy later • investor “borrowing” shares from broker • for a period of time • betting on price going down

  29. Securities markets jargon alert! • Reading the Market • Bear market • period of falling stock prices • Bull market • period of rising stock prices • Random walk

  30. Securities markets • Reading the Market • Market indexes • a basket of stocks • summarize trends • overall market • specific industries/groups

  31. Securities markets • Reading the Market • Market indexes • Standard & Poors • TSE • Dow Jones • NASDAQ

  32. Reading Stock Quotations change since yesterday’s close highest price today stock sales lowest price today

  33. Corporate Debt • a company takes on debt • because it has to • can’t get equity • gets caught short • survival • because it wants to • if cost of debt is less than • cost of equity • profit generated

  34. Corporate Debt • short-term • trade credit • line of credit • accounts payable • factoring accounts receivable • commercial paper • loan

  35. Corporate Debt • short-term • trade credit • open book credit • promissory note • trade draft • trade acceptance

  36. Corporate Debt • short-term • line of credit • specified amount • technically, not guaranteed • Revolving Credit Agreement • guaranteed • commitment fee

  37. Corporate Debt • short-term • accounts payable • stretch payments • can be costly • reputation • interest • common

  38. Corporate Debt • short-term • factoring accounts receivable • sell A/R at less than face value

  39. Corporate Debt • short-term • commercial paper • unsecured notes • sold for less than face value • repurchased in 30 to 270 days • for face value • need to be creditworthy

  40. Corporate Debt • short-term • loan • unsecured • secured • collateral

  41. Corporate Debt • long-term • loan • corporate bond

  42. Corporate Debt • long-term • loan • fixed or floating rate • quick to process • do not require divulging business plans

  43. Corporate Debt • long-term • corporate bond

  44. Debt vs. Equity

  45. Preferred Shares ½ way between debt & equity • unlike common shares • no voting rights

  46. Preferred shares ½ way between debt & equity • like bonds • fixed payments • priority over common shares • unlike bonds • no maturity dates • no legal penalty for non-payment

  47. Exam • pick 4 most important chapters • your e-mail votes by Mon • influential • I’ll let you know Tue

  48. Exam • proposed chapters • ch 3 • Conducting Business Ethically and Responsibly • ch 4 • Entrepreneurship, Small Business, and New Venture Creation • ch 11 • Understanding Accounting • ch 16 • Financial Decisions and Risk Management

  49. Exam • chosen chapters • ch 3 • Conducting Business Ethically and Responsibly • ch 4 • Entrepreneurship, Small Business, and New Venture Creation • ch 12 • Understanding Marketing Processes and Consumer Behaviour • ch 16 • Financial Decisions and Risk Management

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