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Chapter

Chapter. Securities Markets: Financing and Investing Opportunities. 19. 19- 1. Capital Markets. Primary Markets (IPO's) Secondary Markets. Bull Market. Bear Market. Stock Market Fluctuations. Stock Exchanges.

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  1. Chapter Securities Markets: Financing and Investing Opportunities 19 19-1

  2. Capital Markets • Primary Markets (IPO's) • Secondary Markets

  3. Bull Market Bear Market Stock Market Fluctuations

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

  5. Stock Exchanges • Organization whose members can buy and sell (exchange) securities for companies and investors • Brokerage firms purchase memberships (seats) on the exchanges Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

  6. Organized Securities Exchanges • New York Stock Exchange (NYSE) • American Stock Exchange (AMEX) • NASDAQ • Foreign Stock Exchanges

  7. Foreign Exchanges • Japan ----------- NIKKEI • Germany ------- DAX • France ---------- CAC-40 • Britain ---------- FTSE 100 • Euro Zone ----- DJ Euro Stoxx • Hong Kong ---- Hang Seng • India ------------- Bombay Sensex Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

  8. BONDS(Debt)

  9. Bond Terms • Principal • Interest Rate • Term • Issue Date • Maturity Date

  10. Bond Classes • Classes • Unsecured • Debenture • Secured • Mortgage

  11. Special Bond Features • Sinking Fund • Callable • Convertible

  12. STOCKS(Equity)

  13. What is Stock? • Ownership • Dividends • Common and Preferred

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

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

  16. Issuing Preferred Stock • Differencesfrom CommonStock: • 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 Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

  17. Issuing Preferred Stock Preferred stocks and Bonds are rated according to Risk by Standard & Poor’s and Moody’s Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

  18. Issuing Preferred Stock • Differences between PreferredStock 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 Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

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

  20. Advantages No Repayment No Legal Obligation Does Not Create Debt Disadvantages Voting Rights Dividends not Tax-Deductible Management Works to Keep Stockholders Happy Stock

  21. Features of Stock • Market Order • Limit Order

  22. Stock Splits

  23. How Stock Splits Work 100 shares of ABC stock selling @ $99 3 for 1Stock Split Declared 100 shares $33@ 100 shares $33@ 100 shares $33@ Lower Price increases Demand Increased demand increases price 100 shares @$37 100 shares @$37 100 shares @$37 How Much Potential Profit Has Been Made?

  24. Buying Stock On Margin

  25. Buying Stock on MarginHow does the investor make money? The investor finds he is able to buy the stock with a 40% margin An investor wishes to buy 100 shares at $100 per share Step 1 Step 3 The investor puts up $4,000 and borrows $6,000 from the broker However, the investor has only $4,000 available to invest Step 4 Step 2

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

  27. 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

  28. 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

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