1. Securities*: -Stocks – equity financing -Bonds – debt financing -money market instruments: (derivatives, futures, options) -* vrijednosnice, vrijednosni papiri

2. STOCKS & SHARES (1) 1. Most companies begin as ……………. limited companies. 2. If they want to grow they must ………. capital. 3. One way to obtain capital for growth is to ……….., i.e. apply to the stock exchange to become a public limited comp. 4. Smaller or newer companies usually sell their shares on the ………….……. markets. private raise go public over-the-counter

3. REVISION FOUR TYPES OF ORGANISATIONS IN THE PRIVATE SECTOR 1) WITH UNLIMITED LIABILITY __________________ ______________ 2) WITH LIMITED LIABILITY ___________________ Sole proprietorship Partnership Private limited company Public limited company

4. REVISION LIMITED vs. UNLIMITED LIABILITY FOR DEBT In businesses with limited liability, owners are responsible* for their company’s debts up to a certain amount if it goes out of business, and do not have to sell their personal assets to repay the debts. * ______ Source: Longman Business English Dictionary liable

5. LIMITED COMPANIES a legal ______ (independent legal existence from its shareholders) shareholders have limited liability (liable for the amount of capital ________) in case of bankruptcy, assets are __________ and the company is wound up. entity invested liquidated

6. LIMITED COMPANIES owners put ___ the capital (divided into shares) shareholders can _______the AGM and take a share of the profit through dividend shareholders elect a _______________ and a Chairperson the BoD ________managers to run day-to-day business documents which need to be ________ : the Memorandum of Association and Articles of Association Registrar of Companies issues a Certificate of Incorporation up vote at Board of Directors appoint drawn up

7. PRIVATE →PUBLIC LIMITED COMPANY FLOTATION / IPO / GOING PUBLIC change a private company into a public company by issuing shares and soliciting the public to purchase them  The bank has closed its initial public offer early because of overwhelming demand from investors.  The price of the company’ shares on the day it floated on the stock market beat all expectations.  Investors expected the share price to rise steeply after the company went public.  Source: Longman Business English Dictionary  MK, p 87: Reading Stocks and Shares

9. STOCKS & SHARES (2) 5. Issuing shares for the first time is known as ………… a company (making a …….........) or _ _ _. 6. To guarantee to purchase all the securities at an agreed price on a certain day, if they cannot be sold to the public: …………….. floatingflotation I P O to underwrite

10. VOCABULARY Companies going public… i____ shares a_____ to a stock exchange j____ over-the-counter market a____ to be quoted or listed on a stock exchange f_____ a large number of requirements u___ an investment bank to u________the issue ssue pply oin pply ulfill senderwrite

11. Synonyms British English companies shares/stock EQUITIES shareholders ordinary shares preference shares flotation Annual General Meeting Articles of Association Memorandum of Assoc. authorised share capital property American English corporations stocks stockholders common stock preferred stock initial public offering Annual Stockholders M. Bylaws Certificate of Incorporation authorized capital stock real estate

12. BONDS MK, U 16 (p 81)

13. Bonds What? Who? Why?

14. What? Who? Why? borrowing/lending: face value (principal) coupon (interest rate) bond issuers governments (government bonds) companies (corporate bonds) bondholders -individuals & institutional investors -selling or holding bonds until maturity

15. Debt Finance vs. Equity Finance (MK, p.81) Scan the text for comparison

16. Debt Finance vs. Equity Finance (MK, p.81) BONDSFOR INVESTORSFOR ISSUERS ADVANTAGE DISADVANTAGE

17. Debt Finance vs. Equity Finance (MK, p.81) BONDSFOR INVESTORSFOR ISSUERS ADVANTAGE generally saferbond interest is tax deductible WHAT DOES IT MEAN? DISADVANTAGE shares pay a higher return debt increases a company’s financial risk HOW?

18. More about bonds (MK, p.81) Meaning of T-notes, T-bonds and gilts? Who are market makers? Bid vs. offer price? What is a spread? What is inversely related? What does the yield of a bond depend on?

19. More about bonds (MK, p.81) Meaning of T-notes, T-bonds and gilts? Treasury notes, treasury bonds and gilt-e_____ stock (UK) Who are market makers? Banks & b________ companies which q____ bid and offer price. Bid vs. offer price? _____ – the highest price that the buyer is willing to pay _____ – the price asked by sellers What is a spread? D________ between the bid & offer prices (bid/ask or buy/sell) What is inversely related? I_____ r____ in the economy & the price of existing bonds.WHY? What is the yield of a bond and what does it depend on? I______ given by a bond. It depends on its c______ and its purchase price. dged rokerageuote Bid Offer ifference nterest ate ncomeoupon

20. More about bonds (MK, p.81) Meaning of T-notes, T-bonds and gilts? Treasury notes, treasury bonds and gilt-edged stock (UK) Who are market makers? Banks & brokerage companies which quote bid and offer price. Bid vs. offer price? Bid – the highest price that the buyer is willing to pay Offer – the price asked by sellers What is a spread? Difference between the bid & offer prices (bid/ask or buy/sell) What is inversely related? Interest rates in the economy & the price of existing bonds.WHY? What is the yield of a bond and what does it depend on? Income given by a bond. It depends on its coupon and its purchase price.

21. Comprehension & vocabulary, MK p 82 1 F 2T 3T 4F 5T 6F 7F 8F 1 cash flow 2 equity 3 mutual funds4 pension funds 5 principal6 maturity 7 coupon8 insolvent or bankrupt 9 creditors10 dividends 11 market makers12 bid / bid price 13 offer / offer price 14 yield

22. Match up verbs with nouns borrow money deduct interest payments finance activitiesissue shares issue bondspay (a rate of) interest pay a (higher) returnpay dividends pay taxreceive interest payments raise money repay principal sell assets deduct taxreceive dividends repay bonds repay moneysell bonds

23. The Financing of Corporate Activity, RB p 37 Based on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc. Match headings with paragraphs Text headings: Corporate finance Stocks vs. Bonds Bond risks

24. The Financing of Corporate Activity Based on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc. Features of well-organized writing: 1.Text headings 2.Topic sentences 3.Paragraphing 4.Connectors

25. CORPORATE FINANCE Full text: Generally speaking,...... three different ways... First,..., Second,..., For example,...Third,... Notes: THREE WAYS OF CORPORATE FINANCE: 1. 2..... (e.g....) 3.

26. CORPORATE FINANCE Full text: Generally speaking,...... three different ways... First,..., Second,..., For example,...Third,... Notes: THREE WAYS OF CORPORATE FINANCE: 1. internally, out of undistributed corporate profits 2. borrowing from financial institutions (e.g. a commercial bank, a savings and loan association, an insurance company) 3. issuing common stocks and bonds

27. STOCKSVS.BONDS Full text: In contrast,..., For example,... This means that... There are clearly important differences between..., First,... Second,..., On the one hand,..., On the other,.... Notes: STOCKSvs.BONDS -ownership-lending -less risky:1. 2.

28. STOCKSVS.BONDS Full text: In contrast,..., For example,... This means that... There are clearly important differences between..., First,... Second,..., On the one hand,..., On the other,.... Notes: STOCKSvs.BONDS -ownership-lending -less risky: 1. legally prior claim 2. income “guaranteed”

29. Bond risks Full text: clear paragraphing & topic sentences Notes: CORPORATE BOND RISKS 1. 2. 3.

30. Bond risks Full text: clear paragraphing & topic sentences Notes: CORPORATE BOND RISKS 1. market value of bonds may fall, selling before maturity may cause you to incur a capital loss 2. price of existing bonds varies inversely with with interest rates in the economy 3. inflation

31. Introduction to Bonds (video) WATCH: http://www.investopedia.com/video/play/understanding-bonds Definition of bonds? Term used for the price of a bond on the primary market? Maturities mentioned? Coupons mentioned? Why do corporations/governments issue bonds? What is important to remember about bonds?

32. What is a bond? A d____ instrument issued by governments, corporations and other entities in order to finance projects or activities. A l____ that investors make to the bond’s i______. Term used for the price of a bond on primary market? F____ value. What is the face value of a bond? The amount l_____ to the issuer. What does the investor receive in exchange for the loan? Interest, known as c______. ebt oan ssuers ent oupon ace

33. What is maturity? The time when a financial instrument (such as a bond or an insurance policy) becomes ready to be p_____. Bonds are issued for a specified period of time. Maturities mentioned? 1 year, 3 years or 30 years Coupons menioned? 8% Why do corporations/govts. issue bonds? To fund capital projects / public projects aid

34. What is important to remember about bonds? The higher the interest rate, the more/less risk it is likely to carry. The higher the interest rate, the more risk it is likely to carry. HW: MK, p 83 (tasks) – 84 (three ads) Reading: How to profit from bonds - read the ads on p 84 - answer questions - vocabulary

35. Intro to stocks? CORPORATE FINANCE, R p 37: Corporations (PLC’s) finance their activities in ____ different ways. Internally, out of ________ ________ _____ and externally, by _________ from financial institutions such as commercial banks, _______ & ____ ___________ or insurance companies. Finally, corporations can issue ______ & _______. * štedno kreditna zadruga three undistributed corporateprofitsborrowing savingsloanassociations* stocksbonds

36. STOCKS VS. BONDS A stock is an ________ _____ while a bond is not. A bond purchaser is ______ money to a corporation. The stated value of a bond when it is first issued is its _______________ value. The amount lent to the corporation is the ______ and the corporation promises to repay it at a specified future date, also known as the bond’s ______ date. The bondholder also receives annual ______ payments. ownershipshare lending face / par / nominal principal maturity interest

37. STOCKS VS. BONDS, cont. Bonds are considered to be less ______ for two reasons: 1. Dividends can be paid to ___________ only after the interest rates due to bondholders have been paid. This means that bondholders have a _____ _____ _____. 2. If the corporation runs into problems, stockholders may receive no ________ and the value of their stock may ___________________. Unless the corporation goes bankrupt, bondholders are guaranteed a fixed interest rate and the return of the _______ at _______. risky stockholders legally priorclaim dividends plummet / plunge / sink principalmaturity

38. BOND RISKS – finish the sentences Corporate bonds are not.... riskless. The market value of bonds... varies over time in accordance with... the financial health of the corporation. If the corporation falls on hard times and its financial integrity is shaken.... the market value of your bond may.... fall. Selling the bond on the bond market prior to... maturity (for less than its... nominal value) will cause... a capital loss.

39. BOND RISKS, cont.– finish the sentences Market prices of bonds are also affected by... changes in interest rates. Increases in interest rates cause bond prices to... fall. Decreases in interest rates cause... bond prices to rise. In other words, the market value of a bond rises if it pays a... higher fixed interest rate than the current interest rate. Bondholders face another element of risk due to... inflation. Substantial inflation will diminish the... purchasing power of the... principal. You will have lent “dear” dollars, but... will be repaid in “cheap” dollars.

40. DEBT FINANCING ( = SECURITIES* (part II): BONDS (U16) DEBT FINANCING ( = loans) Risk rating: AAA (best) to C (worst) Companies: BONDS an interest paying loan which can be traded on bond markets securities, papers * vrijednosnice Governments: LONG-TERM BONDS: GILTS – GB TREASURY BONDS-USA SHORT-TERM BONDS: TREASURY BILLS (3-MONTH) HW: MK 2a, 2b & 2c

41. Stocks vs. Bonds (video ex.) WATCH: http://www.investopedia.com/video/play/stocks-versus- bonds Stocks and bonds are the two biggest 1… of most 2 …. Stocks usually provide a steady 3…, and bonds tend to ensure a 4….. Bonds can be bought from 5…, and a careful selection of stocks will include 6…. A combination of stocks and bonds is good for all kinds of investors. For aggressive investors, bonds may 7... the risk of stocks and stabilize the 8… of the market, while stocks can help 9…. investors 10… against the risk of inflation.