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Chapter 8 Overview of Equity Securities

Chapter 8 Overview of Equity Securities. Presenter Venue Date. EXHIBIT 8-1 Country and Regional Contributions to Global GDP and Equity Market Capitalization (2007). Source : MacroMavens, IMF World Economic Outlook 2008 , Standard & Poor’s BMI Global Index weights. .

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Chapter 8 Overview of Equity Securities

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  1. Chapter 8 Overview of Equity Securities Presenter Venue Date

  2. EXHIBIT 8-1 Country and Regional Contributions to Global GDP and Equity Market Capitalization (2007) Source: MacroMavens, IMF World Economic Outlook 2008, Standard & Poor’s BMI Global Index weights.

  3. EXHIBIT 8-2 Equity Markets Ranked by Total Market Capitalization at the End of 2008 (billions of U.S. dollars) Source: Adapted from the World Federation of Exchanges 2008 Report (see http://www.world-exchanges.org).

  4. EXHIBIT 8-3 Real Returns on Global Equity Securities, Bonds, and Bills during 1900-2008 Source:E. Dimson, P. Marsh, and M. Staunton (2009)

  5. EXHIBIT 8-6 International Comparisons of Stock Ownership in Selected Countries: 2000–2008 Source: Adapted from the 2008 Australian Share Ownership Study conducted by the Australian Securities Exchange (see http://www.asx.com.au). For Australia and the United States, the data pertain to direct and indirect ownership in equity markets; for other countries, the data pertain to direct ownership in shares and share funds. Data not available in specific years are shown as “N/A.”

  6. Common Shareholders

  7. Voting Rights

  8. Embedded Options

  9. Preference Shares (Preferred Stock)

  10. Dividends on Preference Shares

  11. Possible Advantages of Convertible Preference Shares

  12. Private Equity Securities

  13. Investing in Nondomestic Equity Securities

  14. EXHIBIT 8-16 Summary of the Main Features of American Depository Receipts Source: Adapted from Boubakri, Cosset, and Samet (2008): Table 1.

  15. Return Characteristics of Equity Securities

  16. EXHIBIT 8-17 Impact of Reinvested Dividends on Cumulative Real Returns in the U.S. Equity Market: 1900–2008 Source: Dimson, Marsh, and Staunton (2009).

  17. Methods for Estimating Risk and Return

  18. Preference Shares Are Less Risky than Common Shares

  19. Embedded Options and Risk • Higher risk: • Callable • Nonputable • Noncumulative • Lower risk: • Noncallable • Putable • Cumulative

  20. Why Issue Equity?

  21. Goals for Managing Equity • Increase net income • Retain more earnings • Issue shares • Manage investors’ expectations

  22. Accounting Return on Equity (ROE)

  23. Market Value, Book Value, and Price-to-Book Ratio Market value of equity = Market price per share × Shares outstanding Market value of equity = US$16.97 × 6,750,000 = US$114,547,500 Book value of equity per share = Total shareholders’ equity/Shares outstanding Book value of equity per share = US$57,556,000/6,750,000 = US$8.53 Price-to-book ratio = Market price per share/Book value of equity per share Price-to-book ratio = US$16.97/US$8.53 = 1.99

  24. The Cost of Equity

  25. Investor’s Required Rate of Return Cost of equity Investor’s minimumrequired rate of return Estimate with pricing models: dividend discount model (DDM), capital asset pricing model (CAPM), etc.

  26. Summary • Types of equity securities • Importance and relative performance of equity securities • Ownership characteristics and voting rights • Investing in nondomestic equities • Risk and return characteristics • Market value and book value • Cost of equity, (accounting) return on equity, and investor’s required return

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