Securities and Stock Exchange Stocks and Bonds

Mag. Maria Peer 2 Securities Documents acknoledging the investment of money in either the money market (up to 3 years) or the capital market (3 years and longer Securities are transferable certificates of ownership or indebtedness Primary market: market where securities are issued for the first time Secondary market: market where investors meet to trade (buy and sell) securities at the actual market price

Mag. Maria Peer 3 Debt securities Represent creditorship rights: Bonds (debentures) Mortgage bonds Municipal bonds or local bonds

Mag. Maria Peer 4 Equity securities Represent ownership rights: Shares Investment or mutual fonds shares Dividend rights certificates

Mag. Maria Peer 5 Special forms Special types of securities which are a mixture of the two mentioned above: Participating certificates Convertible bonds Warrant bonds Futures Options

Mag. Maria Peer 6 Basic differences between equity and debt securities Equity securitiesDebt securities Represent ownership Represent creditor‘s rights – the owner of the security grants a lown to the issuer of the security Entitle to a vote at the annual general meeting No right to vote and thus no say in running the company Entitle to a share in net profits (dividend) Entitle to interest payments Entitle to participate in the distribution of assets in case of a close down In case of a closedown, these securities are paid out before anything is paid to the company owners Represent risk captal as the investment may be lost if the company fails and as the dividends paid are contingent upon the profits made Do not represent risk capital and thus tend to pay less but are considered to be a rather safe investment Represent equity for the company Represent loan capital for the company

Mag. Maria Peer 7 Debt securites Represent loan capital Acknowledge the right to repayment Entitle to receive interest Are issued by public bodies and banks Largest issuer (in Austria): Republic of Austria

Mag. Maria Peer 8 Bonds IOU (I owe you) – note given by a borrower to a lender By purchasing bonds an investor becomes a creditor (not a part-owner) to the issuing corporation or public body. The bondholder has a claim on the repayment of the capital invested at the end of the bond‘s period Has a claim on interest payment during the bond‘s period and Must be paid off in full before anything is paid to the company‘s owners if the complany gets into financial trouble and has to be resolved.

Mag. Maria Peer 9 Types of bonds Public placements: general public is invited to subscribe to these bonds – the more investors subscribe the better the placing. A high level of investor diversification helps to limit the danger of collapses in prices at the stock exchange which may be caused by large quantity sales Private placement: the bonds issued are not offered to the general public – are only addressed to large-scale investors such as institutional investors or asset management companies

Mag. Maria Peer 10 Types of bonds Concerning the form of interest payment: Straight bonds: bonds guarantee a fixed annual interest rate Floating rate notes (vario bonds): the rate of interest is variable and adjusted regularly to the current level of interst Zero bonds (premium bonds): no interest payments are made during a bond‘s period, e.g. issuing price: 54 %, redemption after 10 years at 100 % (typical zero bond); issuing price 100 %, redemption after 8 years at 185 % (premium bond)

Mag. Maria Peer 11 Types of bonds Concerning the issuer of bonds: Public bonds: issued by the government or other local authorities in order to raise the funds required for large investments (housing or road construction) Bank bonds: issued to raise the financial means necessary for granting loans Corporate bonds: issued by large enterprises to raise long-term finance