1. Chapter Twenty One Investment Banks, Brokerage Firms, and Mutual Funds

2. Copyright © 2004 Pearson Education Canada Inc. Slide 21–2 Investment Banks Intermediaries that help corporations raise funds by selling securities in the financial markets Investment banks may underwrite a security issue

3. Copyright © 2004 Pearson Education Canada Inc. Slide 21–3 Underwriting Stocks and Bonds Giving Advice –When to offer? –At what price? Filing Documents –Exchange Commissions –Registration statement –Prospectus Underwriting –Syndicate Marketing Outcomes –Fully subscribed –Undersubscribed –Oversubscribed Best Efforts

4. Copyright © 2004 Pearson Education Canada Inc. Slide 21–4 Securities Brokers and Dealers Brokerage Service –Securities Orders Market Order Limit Order –Other Services Margin Credit Full-Service Brokers versus Discount Brokers Securities dealers hold securities and make a market

5. Copyright © 2004 Pearson Education Canada Inc. Slide 21–5 Mutual Funds Mutual funds pool the resources of many small investors by selling them shares and using the proceeds to buy securities

6. Copyright © 2004 Pearson Education Canada Inc. Slide 21–6 Mutual Fund Families (Complexes) Investment companies usually offer a number of different types of mutual funds Investors can often move investments among these funds without penalty The complexes often issue consolidated statements Mutual fund fact book http://www.ici.org/fact_figures/factbook_toc.html

7. Copyright © 2004 Pearson Education Canada Inc. Slide 21–7 Fee Structure of Investment Funds Open-End Fund Closed-End Fund –Load Funds –No-Load Funds

8. Copyright © 2004 Pearson Education Canada Inc. Slide 21–8 Calculating a Mutual Fund’s Net Asset Value Net Asset Value (NAV) Definition: Total value of the mutual fund’s stocks, bonds, cash, and other assets minus any liabilities such as accrued fees, divided by the number of shares outstanding

9. Copyright © 2004 Pearson Education Canada Inc. Slide 21–9 Hedge Funds Take advantage of unusual spreads between security prices Often highly leveraged Relatively unregulated Figure 4: The Price of Two Similar Securities