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

2. Capital Markets
Primary Markets (IPO's)
Secondary Markets

3. Stock Market Fluctuations
Bull Market
Bear Market

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

5. 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.

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

7. 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.

8. BONDS (Debt)

9. Bond Terms
Principal
Interest Rate
Term
Issue Date
Maturity Date

10. Bond Classes
Classes
Unsecured
Debenture
Secured
Mortgage

11. Special Bond Features
Sinking Fund
Callable
Convertible

12. STOCKS (Equity)

13. What is Stock?
Ownership
Dividends
Common and Preferred

14. 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.

15. 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.

16. 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.

17. 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.

18. Features of Stock
Market Order
Limit Order

19. Stock Splits

20. How Stock Splits Work How Much Potential Profit Has Been Made?
100 shares of ABC stock $99
3 for Stock Split Declared
100 shares
100 shares
100 shares
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
100
100
How Much Potential Profit Has Been Made?

21. Buying Stock On Margin

22. 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

23. Stock Market Indicators
Dow Jones Industrial Average (DJIA)
30 Industrial, 20 Transportation, 15 Utility
Standard & Poor’s 500
400 Industrial, 40 Financial, 40 Utility, Transportation
NASDAQ
Big Charts.com