1 18. Financing & Investing through Securities Markets Part 1

2 Topics Investment options –Stock –Corporate bonds –Government securities –Mutual funds Portfolio management of mutual funds –Commodities

3 Stock Stock certificate –Name of shareholder– Stock characteristics –No. of shares of stock owned– Par value Stock entitles owner to dividends Additional rights Authorized stock –Issued stock –Unissued stock Two classes of stock –Common: voting rights, residual claim on assets, stock split benefits, no stated dividend –Preferred: no voting rights, preferred claims on dividends & assets, stated dividend, callable, may be convertible

4 Money Market Instruments & Corporate Bonds Money market instruments: short-term debt Bond: certificate of indebtedness –Denomination (face value), maturity date, interest rate May be secured or unsecured –Secured bonds backed by collateral –Unsecured bonds called debentures Retirement of bonds –Serial bonds vs. term bonds– Callable bonds –Sinking fund Higher interest rate –Convertible bonds Call premium Lower interest rate

5 Government Securities Federal, state, & local governments issue bonds Types of U.S. government bonds: –Treasury bills –Treasury notes –Treasury bonds –Savings bonds (Series EE bonds) State/local bonds: municipal bonds –General obligation bonds –Revenue bonds

6 Mutual Funds Invest funds of many investors under professional manager Advantages –Professional management –Diversification Six important terms –Closed-end mutual fund –Open-end mutual fund –Net Asset Value (NAV) per share –Load fund –Low-load fund –No-load fund

7 Mutual Funds (Cont.) Major categories –Balanced funds –Bond funds –Global funds –Growth funds –Growth-income funds –Income funds –Index funds –Industry funds –Money market funds

8 Commodities Raw materials –Used in production of other goods –Traded on commodity exchanges