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Nickels McHugh McHugh

Nickels Cover. Nickels McHugh McHugh. Chapter. Securities Markets: Financing and Investing Opportunities. 20. 20- 2. Functions of Securities Markets. Long-Term Funding for Businesses Place to Buy/Sell Securities (Investments). Capital Markets. Primary Markets (IPO's)

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Nickels McHugh McHugh

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  1. Nickels Cover Nickels McHugh McHugh

  2. Chapter Securities Markets: Financing and Investing Opportunities 20 20-2

  3. Functions ofSecurities Markets • Long-Term Funding for Businesses • Place to Buy/Sell Securities (Investments)

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

  5. Preferred or Common Investment never has to be repaid Not legally obligated to pay dividends Secured or Debenture Must be repaid on maturity date Interest must be paid whenever specified Debt vs Equity Financing Debt Financing Equity Financing

  6. Investment Banker • Assist Sale/Issue of New Securities • Underwrite issues • Sells to Institutional Investors

  7. Bond Market • Coupon/Interest Rate • Denomination ($1,000) • Principal • Maturity Date • Types • Unsecured/Debenture • Secured • Mortgage

  8. Advantages No Vote Interest is Tax-Deductible Temporary Source of Funds Disadvantages Increase Debt Legal Obligation to Pay Interest Repaid on Maturity Date Bonds

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

  10. What is Stock? • Ownership • Certificate • Par Value • Dividends • Common vs. Preferred

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

  12. Organized Securities Exchanges • New York Stock Exchange (NYSE) • Over-the-Counter (OTC) • NASDAQ • American Stock Exchange (AMEX) • Foreign Stock Exchanges

  13. Founding Dates of U.S. Exchanges Chicago Stock Exchange (1882) New York Stock Exchange (1792) Chicago Board Options Exchange (1973) Boston Stock Exchange (1834) NASDAQ (1971) International Securities Exchange (2000) Philadelphia Stock Exchange (1790)

  14. NASDAQ vs NYSE (Electronic - (Trading No Trading Floor) Floor) Capitalization $2.9 Trill. $13.5 Trill. # of Firms Listed 3,800 2,800 NASDAQNYSE

  15. Securities Regulation • Securities Act of 1933 • Prospectus • Securities Exchange Act of 1934 • Insider Trading

  16. Broker/Brokerage* Full Service = $480 Discount = $170 On-Line = $ 20 *Cost to Trade 500 Shares of IBM @ Price of $101.50

  17. Warning Signs YourBroker is Cheating • Promises of set returns on usually volatile investments • Guarantees against losses • Claims to have “inside information” • Irregularities on account statements • High pressure sales tactics Source: St. Louis-Dispatch, “How to Sniff Out Investing Scams”, Feb. 17, 2002.

  18. Components for Optimal Portfolio Performance • Diversification • Timelines • Safety & Risk • Income & Total Return

  19. Investment Criteria • Risk • Yield • Duration • Liquidity • Tax Consequences

  20. Types of Bonds

  21. Features of Stock • Growth vs. Income • Capital Gain vs. Dividend • Blue Chip vs. Penny • Market Order • Limit Order • Stock Split

  22. Bull Market Bear Market Stock Market Fluctuations

  23. How Stock Splits Work 100 shares of stock selling at $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 Profit Has Been Made?

  24. Mutual Fund Facts Source: Forbes, “Safe At Any Speed”, December 23, 2002, p. 336.

  25. Mutual Fund Owners Source: USA Today, 10/16/2000

  26. Mutual Funds • Pool Investors’ Money • Best for Small Investors • Index Fund • Diversification • No-Load vs. Load • Open-End vs. Closed-End

  27. Traditional Stocks/Bonds Gov’t Securities/CDs Money Market or Mutual Funds Real Estate High-Risk Stock on Margin Junk Bonds Commodities Types of Investments

  28. 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

  29. Measures of Investment • Stock Indexes- Big Charts.com • DJIA • S & P 500 • Amex • NASDAQ • Stock Quotations • Bond Quotations • Mutual Fund Quotations

  30. Stock Quotes • % Change in YTD Price • High/Low Price • Company Name & Stock Symbol • Last Dividend Per Share • Dividend Yield • P/E Ratio • # of Shares Traded • Closing Price • Net Change- Price

  31. Mutual Fund Quotations • Fund Name • Net Asset Value (NAV) • Net Change in NAV • YTD Return • Long-Term Return

  32. Original 12 Dow Stocks(1896) • American Cotton Oil • American Sugar Refining Co. • American Tobacco • Chicago Gas • Distilling & Cattle Feeding Co. • General Electric Co. • Laclede Gas Light Co. • National Lead • North American Co. • Tennessee Coal, Iron, & Railroad Co. • U.S. Leather • U.S. Rubber Co.

  33. Dow Milestones

  34. 10/06/31 12.9 14.9 10/30/29 28.4 12.3 09/21/32 7.7 11.4 10/21/87 186.8 10.2 08/03/32 5.1 9.5 02/11/32 6.8 9.5 11/14/29 18.6 9.4 12/18/31 6.9 9.4 DJIA Biggest % Jumps Gains Losses DatePoints% DatePoints% 10/19/87 508.0 22.6 10/28/29 38.3 12.8 10/29/29 30.6 11.8 11/06/29 25.6 9.2 12/18/09 5.6 8.7 08/12/32 5.8 8.4 03/14/07 6.9 8.3 10/26/87 156.8 8.0

  35. 07/25/02 488.9 6.4% 07/29/02 447.5 5.4 09/08/98 380.5 5.0 10/28/97 337.2 4.7 09/01/98 288.4 3.8 09/02/97 257.4 3.4 09/23/98 257.2 3.3 11/03/97 232.3 3.1 DJIA Biggest Net Jumps Gains Losses DatePoints% DatePoints% 09/17/01 684.4 7.1 10/27/97 554.3 7.2 08/31/98 512.6 6.4 10/19/87 508.0 22.6 08/27/98 357.4 4.2 08/04/98 299.4 3.4 09/10/98 249.5 3.2 08/15/97 247.4 3.1

  36. What Adults Believe About Wall Street Key Players % Adults That Agree With the Statement Source: USA Today

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