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

Capital Markets Primary Markets (IPO's) Secondary Markets

Stock Market Fluctuations Bull Market Bear Market

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

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.

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

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.

BONDS (Debt)

Bond Terms Principal Interest Rate Term Issue Date Maturity Date

Bond Classes Classes Unsecured Debenture Secured Mortgage

Special Bond Features Sinking Fund Callable Convertible

STOCKS (Equity)

What is Stock? Ownership Dividends Common and Preferred

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.

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.

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.

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.

Features of Stock Market Order Limit Order

Stock Splits

How Stock Splits Work How Much Potential Profit Has Been Made? 100 shares of ABC stock selling @ $99 3 for 1 Stock Split Declared 100 shares $33@ 100 shares $33@ 100 shares $33@ Increased demand increases price Lower Price increases Demand TA 20-6 How Stock Splits Work 1. This acetate covers how stock splits work in the investments market. The topic of stock splits is covered in the chapter but students are often confused about this concept. 2. An important point to note is that the investment value does not change immediately after the stock split. The investor has the same original dollar value as before the split. The benefit to the investor is that the stock price is reduced which may cause more investors to demand the stock at its lower price. If students can recall the discussion in Chapter 2 related to the concept of supply and demand, it will be somewhat obvious to them how the demand for a lower-priced stock will cause the price to go up. 3. It may be advisable to mention that dividend rates are also divided according to the degree of the split. Most stock splits are two-for-one splits even though companies can split the stock in any manner they choose. Disney in its most recent stock split, for example, split its stock three-for-one. 4. Students may also be interested to know that before a company splits its stock the company’s board of directors must approve the split and shareholders often are called on to vote on the proposed split. 100 shares @$37 100 shares @$37 100 shares @$37 How Much Potential Profit Has Been Made?

Buying Stock On Margin

Buying Stock on Margin How 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 TA 20-9 Buying Stock on Margin 1. This acetate takes students through the steps involved in buying stock on margin. Using margin is an investment option students are often very interested in but, unfortunately, they understand very little about how specifically it operates. 2. You may wish to point out that the Federal Reserve Board sets margin rates in the market. These rates can fluctuate at the discretion of the Federal Reserve Board but have been pegged at 50% for some period of time. 3. It should also be pointed out that the broker will charge interest for money lent out on margin. Also, the notion of margin calls should be reinforced illustrating the potential of losing money through buying on margin. The late 1990s margin calls forced many investors to dip into savings or in some cases sell off their assets. Step 2 Step 4

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