Capital Markets

1. Capital Markets • Next class: • Read Chapter 6, Managing the Business Firm (pp. 159-163) • Note on Planning perspective. Read An Overview of Planning • Mike’s Bikes: • Decision #7 input due Thursday March 29 at 9:00am • Part IV due Monday April 9th • Part III returned next class

2. Capital Markets • The capital markets are a means of allocating the available capital to the most efficient users • Competitors for that capital are companies, domestic and international, government, provincial, municipal and federal

3. GOVERNMENT Wages, pensions, interest Taxes Taxes Purchases of goods and services Deficit INVESTMENT AND SAVINGS Housing Purchases of durable goods Housing Purchases of durable goods HOUSEHOLDS Net saving Amortization Undistributed profits Wages, pensions, interest, dividends BUSINESS Purchases of goods & services Flow of funds through the economy International Investor and Saver

4. Government Securities • Government of Canada • Government issues bonds to cover shortfalls created by deficits • Treasury bills are a form of short-term financing sold every two weeks • Government bond and treasury bills issues have decreased as governments shift to debt reduction of outstanding debt • Provincial and Municipal • Province and Municipalities mainly borrow to cover capital projects

5. Corporate Securities • 1) Corporate Bonds • Bonds were more important financing tools in the 1980’s; since corporations have found equity markets more attractive • 2) Preferred Shares • preferred shares are an important source of financing likely because of the favorable tax treatment for investors • 3) Common Stock • relatively a small portion of financing is provide by the issue of common shares

6. Bonds • Bond • A written promise that the borrower (firm) will pay the lender (investor) at a stated future date, the principal plus a stated rate of interest • Bonds differ from one another in terms of maturity (payment date), tax status, potential yield (interest rate) • Several companies rate the quality of various bonds (Moody’s, Standard and Poor’s)

7. Corporate Bond Characteristics • Secured - collateral • Unsecured (debentures) – no collateral • Callable bonds - may be paid out by issuer • Sinking fund provision – annual savings • Serial bond - redemption rates are staggered so that the bond is paid off gradually over time • Convertible- option of receiving common stock in lieu of cash

8. Reading Bond Quotations Maturity Date (April 8, 2022) Coupon (interest rate %) Company Name Change (Closing price up $1.11 from previous day) Price (Last transaction price = $138.50) Yield (Annual interest Market price)

9. Preferred Stock • Issued with a stated par value • Dividends paid based on a percentage of par value • Value of the stock can rise or fall with the fortunes of the company • Less risky than common stock • Limited growth potential due to the fixed dividend

10. Common Stock • Common stock – ownership in residual value of a company • Value expressed in various ways • Market value • Current price of a share in the secondary securities market • Book value • Shareholders’ equity divided by the number of shares of common stock outstanding

11. Reading Stock Quotations Sales (Total number of shares traded) Close (Last price paid at close of trading) Stock High (Highest price paid per share for the day was $29.15) Change (Difference between today’s price and previous day’s. A .40 decrease) Low (Lowest price paid per share for the day was $28.50)

12. Other Investments • Mutual funds – a pooling of the resources of many investors and uses funds to purchase various types of financial securities (a portfolio) • Commodities - agreement to purchase specific amounts of a commodity at a certain price on a set date in the future (futures contract) • Stock option - the purchased right to buy (call) or sell (put) a stock

13. T 14-3 Net new funds raised in Canadian securities markets

14. T 14-6 Net new corporate financings by type of security

15. Organization of the Securities Market • Primary markets • Market where new securities are sold and funds go to issuing unit • Secondary markets • Market where outstanding securities are bought and sold by investors. The issuing unit does not receive any funds in a secondary market transaction

16. Organized Exchanges • In Canada • a) Toronto Stock Exchange (TSX) • account of almost 90% of trading • b) TSX Venture Exchange • penny stocks (junior oil and mining) • c) Over the counter market • Outside Canada • New York Stock Exchange (NYSE) is the largest stock exchange in the world, followed by the NASDAQ and London

17. Getting Share Price Information • Newspapers • http://globeinvestor.com/ • http://www.stockwatch.com/ • http://www.tsx.ca • http://www.reuters.com/ • http://ca.finance.yahoo.com/

18. Interesting Stocks • Google (GOOG-Q) • Martha Stewart Omni Vision (MSO-N) • West Jet (WJA-T) • Research in Motion (RIM-T) • Shoppers Drug Mart (SC-T)

19. Invest-X • Purpose: The purpose of the investment club is to provide its members with a forum for exchanging ideas and information about investing, analyzing financial information, executing investment transactions and managing portfolios. • Investment Level:$100.00 per member • Meetings: Meetings are to be held weekly on Thursdays @ 5:00pm. • Website: http://people.stfx.ca/mmoxner/invest-xportfolio2.html

20. Mikes Bikes Part IV • Purpose: Report IV focuses on the analysis of your strategic, financial, marketing and operating decisions and the future operations of your company.  • Mark: 15% • Inclusions: • Title page (1 page, MS Word) • Analysis of Results (1 page, MS Word) • SWOT Analysis (1 page, MS Word) • Recommendations for the Future (1 page, MS Word) • Appendices of Analysis (6-8 pages, MS Excel or MS Word)