1. ****** 19-1 1-1 McGraw-Hill/Irwin Understanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh ** SecuritiesMarkets: Financing and InvestingOpportunities 19 CHAPTER * **

2. ****** 19-2 Functions of Securities Markets Long-Term Funding for Businesses Place to Buy/Sell Securities (Investments)

3. ****** 19-3 Capital Markets Primary Markets (IPO's)Primary Markets (IPO's) Secondary MarketsSecondary Markets

4. ****** 19-4 Investment Banker Assist Sale/Issue of New SecuritiesAssist Sale/Issue of New Securities Underwrite issuesUnderwrite issues Sells to Institutional InvestorsSells to Institutional Investors

5. ****** 19-5 Coupon/Interest RateCoupon/Interest Rate Denomination ($1,000)Denomination ($1,000) PrincipalPrincipal Maturity DateMaturity Date ClassesClasses Unsecured/DebentureUnsecured/Debenture SecuredSecured Bond Market

6. ****** 19-6 Bonds Advantages No VoteNo Vote Interest is Tax- DeductibleInterest is Tax- Deductible Temporary Source of FundsTemporary Source of Funds Can be repaid before maturity with call provisionCan be repaid before maturity with call provision Disadvantages Increase DebtIncrease Debt Legal Obligation to Pay InterestLegal Obligation to Pay Interest Repaid on Maturity DateRepaid on Maturity Date

7. ****** 19-7 Special Bond Features Sinking FundSinking Fund CallableCallable ConvertibleConvertible

8. ****** 19-8 Equity Financing Preferred or Common Investment never has to be repaid Not legally obligated to pay dividends Debt Financing Secured or Debenture Must be repaid on maturity date Interest must be paid whenever specified Debt vs. Equity Financing

9. ****** 19-9 What is Stock? OwnershipOwnership CertificateCertificate Par ValuePar Value DividendsDividends Common vs. PreferredCommon vs. Preferred

10. ****** 19-10 Stock Advantages No RepaymentNo Repayment No Legal ObligationNo Legal Obligation Does Not Create DebtDoes Not Create DebtDisadvantages Voting RightsVoting Rights Dividends not Tax- DeductibleDividends not Tax- Deductible Management Works to Keep Stockholders HappyManagement Works to Keep Stockholders Happy

11. ****** 19-11 Organized Securities Exchanges New York Stock Exchange (NYSE)New York Stock Exchange (NYSE) American Stock Exchange (AMEX)American Stock Exchange (AMEX) Over-the-Counter (OTC) Over-the-Counter (OTC) NASDAQNASDAQ

12. ****** 19-12 Top European Companies by Market Value Source: Financial Times, March 7, 2005

13. ****** 19-13 Own Stocks? Source: USA Today

14. ****** 19-14 Investment Criteria RiskRisk YieldYield DurationDuration LiquidityLiquidity Tax ConsequencesTax Consequences

15. ****** 19-15 Investing in Bonds Corporate Bonds Municipal Bonds US Treasury Bonds From 1 to 20 years From 1 to 40 years From 2 to 30 years Taxable Exempt from federal taxes and some state and local taxes Exempt from state and local taxes May be riskier than government bonds, but may have higher yields Attractive to investors in high tax brackets Government backing provides maximum safety

16. ****** 19-16 Likelihood of Investing In Bonds Source: USA Today

17. ****** 19-17 S & P’s Top Credit AAA-Rated Companies 1.Automatic Data Processing 2.Exxon Mobil 3.General Electric 4.Johnson & Johnson 5.Pfizer 6.United Parcel Service Compared to having 32 Top Companies in the ’80s Source: Business Week, 2006

18. ****** 19-18 Investing in Stock Growth vs. IncomeGrowth vs. Income Capital Gain vs. DividendCapital Gain vs. Dividend Blue Chip vs. PennyBlue Chip vs. Penny Market OrderMarket Order Limit OrderLimit Order Stock SplitStock Split

19. ****** 19-19 How Stock Splits Work 100 shares of ABC stock selling at $80 100 shares @ $40 100 shares @ $45 2 for 1 Stock Split Declared 2 for 1 Stock Split Declared Lower Price increases Demand Increased demand increases price How Much Profit Has Been Made?

20. ****** 19-20 Return From Most Widely Held Stock RankPrice One Year Total Return General Electric $34.66-2.2% Microsoft27.974.1 Pfizer21.35-21.0 ExxonMobil57.3817.0 Cisco Systems 17.37-11.1 Johnson & Johnson 63.345.6 Intel25.114.6 Citigroup47.947.6 Source: Money, January 2006

21. ****** 19-21 Mutual Funds Pool Investors’ MoneyPool Investors’ Money Best for Small InvestorsBest for Small Investors Index FundIndex Fund DiversificationDiversification No-Load vs. LoadNo-Load vs. Load Open-End vs. Closed-EndOpen-End vs. Closed-End

22. ****** 19-22 Sales of Mutual Funds Worldwide Q4, ’03 Q2, ’04 Q4, ‘04 Q2. ‘05 All Funds $73$22$166$166 Equity1167510065 Bond-4-124349 Money Market -67-58-10* Balanced/mixed2342426 Other513825 Source: USA Today, 10/16/2000 Source: Investors Business Daily, February 10, 2006 (In Billions)

23. ****** 19-23 Types of Investments Traditional Stocks/BondsStocks/Bonds Gov’t Securities/CDsGov’t Securities/CDs Money Market or Mutual FundsMoney Market or Mutual Funds Real EstateReal Estate High-Risk Stock on MarginStock on Margin Junk BondsJunk Bonds CommoditiesCommodities

24. ****** 19-24 Components for Optimal Portfolio Performance Diversification Diversification Timelines Timelines Safety & Risk Safety & Risk Income & Total Return Income & Total Return

25. ****** 19-25 Do Corporations Provide Enough Information? Source: USA Today

26. ****** 19-26 How does Buying Stock on Margin work? Step 1 An investor wishes to buy 100 shares at $100 per share Step 2 However, the investor has only $4,000 available to invest Step 3 The investor finds he is able to buy the stock with a 40% margin Step 4 The investor puts up $4,000 and borrows $6,000 from the broker

27. ****** 19-27 Measures of Investment Stock QuotationsStock Quotations Bond QuotationsBond Quotations Mutual Fund QuotationsMutual Fund Quotations

28. ****** 19-28 Stock Quotes % Change in YTD Price% Change in YTD Price High/Low PriceHigh/Low Price Company Name & Stock SymbolCompany Name & Stock Symbol Last Dividend Per ShareLast Dividend Per Share Dividend YieldDividend Yield P/E RatioP/E Ratio # of Shares Traded# of Shares Traded Closing PriceClosing Price Net Change- PriceNet Change- Price

29. ****** 19-29 Mutual Fund Quotations Fund NameFund Name Net Asset Value (NAV)Net Asset Value (NAV) Net Change in NAVNet Change in NAV YTD ReturnYTD Return Long-Term ReturnLong-Term Return

30. ****** 19-30 Original 12 Dow Stocks (1896) American Cotton OilAmerican Cotton Oil American Sugar Refining Co.American Sugar Refining Co. American TobaccoAmerican Tobacco Chicago GasChicago Gas Distilling & Cattle Feeding Co.Distilling & Cattle Feeding Co. General Electric Co.General Electric Co. Laclede Gas Light Co.Laclede Gas Light Co. National LeadNational Lead North American Co.North American Co. Tennessee Coal, Iron, & Railroad Co.Tennessee Coal, Iron, & Railroad Co. U.S. LeatherU.S. Leather U.S. Rubber Co.U.S. Rubber Co.

31. ****** 19-31 How Much Have They Grown? 19552003/2004 S&P 500 45.481126.21(’04) NYSE $207.7 Billion $17.8 Trill (’03) Mutual Fund Industry 1 Million 250 Mill (’03) 1008,000 $2.5 Billion $7 Trill accounts funds assets Source: Fortune, 2004

32. ****** 19-32 What Adults Believe About Wall Streets’ Key Players % Adults That Agree With the Statement Source: Source: USA Today