© prentice hall, 2005excellence in business, revised edition chapter 18 - 1 securities
TRANSCRIPT
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 1
SecuritiesSecurities
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 2
Securities InvestmentsSecurities Investments
• Stocks
• Bonds
• Mutual funds
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 3
Stocks: Important TermsStocks: Important Terms
• Stock certificate
• Authorized stock
• Issued stock
• Unissued stock
• Par value
• Stock split
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 4
Common StockCommon Stock
• Voting rights
• Dividends
• Limited liability
• Liquidity
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 5
Preferred StockPreferred Stock
• Convertible preferred stock
• Cumulative preferred stock
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 6
Corporate BondsCorporate Bonds
• Secured bonds
• Debentures
• Convertible bonds
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 7
Corporate Bond RatingsCorporate Bond RatingsInterpretation Moody’sS&P Interpretation
Highest rating AaaAAA Prime quality
Very strong capacity to pay AaAA High grade
Highest rating AaaAAA Prime quality
Strong capacity to pay; somewhat susceptible to
changing business conditionsAA Upper-medium grade
Very strong capacity to pay AaAA High grade
More susceptible than A rated bonds
BaaBBB Medium grade
Strong capacity to pay; somewhat susceptible to
changing business conditionsAA Upper-medium grade
Somewhat speculative BaBB Somewhat speculative
More susceptible than A rated bonds
BaaBBB Medium grade
Speculative BB Speculative
Somewhat speculative BaBB Somewhat speculative
Vulnerable to nonpayment CaaCCC Poor standing;may be in default
Speculative BB Speculative
Highly vulnerable to nonpayment
CaCC Highly speculative; often in default
Vulnerable to nonpayment CaaCCC Poor standing;may be in default
Bankruptcy petition filed or similar action taken
CCLowest rated; extremely poor chance of ever attaining real investment standing
Highly vulnerable to nonpayment
CaCC Highly speculative; often in default
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 8
U.S. Government U.S. Government Securities and Municipal Securities and Municipal
BondsBonds• Treasury notes
• Treasury bills
• Treasury bonds
• U.S. savings bonds
• Municipal bonds
• Revenue bonds
• Capital gains
• General obligation
bonds
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 9
Retirement of DebtRetirement of Debt
• Serial bonds
• Term bonds
• Sinking fund
• Callable bonds
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 10
Mutual Funds: Important Mutual Funds: Important TermsTerms
• Load fund
• No load fund
• Open end fund
• Closed end fund
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 11
Types of Mutual FundsTypes of Mutual Funds
• Money market
• Growth
• Balanced
• Income
• Global
• International
• Index
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 12
Options and Financial Options and Financial FuturesFutures
• Call options
–Buyers
–Sellers
• Put options
–Buyers
–Sellers
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 13
Speculating in Speculating in CommoditiesCommodities
• Agricultural products
• Raw materials
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 14
Securities MarketSecurities Market
• Primary
– Initial public offerings
• Secondary
–Stock exchanges
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 15
Types of Stock Types of Stock ExchangesExchanges
• Auction
–NYSE
• Dealer
–NASD
• Electronic
–ECNs
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 16
Buying and Selling Buying and Selling SecuritiesSecurities
• Auction exchange (NYSE)
– Exchange floor
– Stock specialist
• Dealer exchange (NASDAQ)
– Computer
– Market maker
• Electronic communication networks
– Computer
– Broker
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 17
Changing Securities Changing Securities MarketplacesMarketplaces
• 20th Century– Bull market– Aggressive growth – Increased employment– Earnings growth
• 21st Century– Bear market– Conservative growth– Increased layoffs– Reduced earnings
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 18
Changing Securities Changing Securities MarketplacesMarketplaces
• Online trading
• Extended hours
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 19
Regulation of Securities Regulation of Securities MarketsMarkets
• Federal laws
• State laws
• Industry self-regulation
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 20
Ask These Questions Ask These Questions Before You InvestBefore You Invest
1. Is the investment registered with the SEC?
2. Have you read the audited financial statements?
3. Is a registered broker offering the investment?
4. What’s in it for the person touting the investment?
5. Should you trust e-mail/bulletin board advice?
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 21
Ask These Questions Ask These Questions Before You InvestBefore You Invest
6. Are you being pressured to act?
7. Does the investment promise you’ll get rich quick?
8. Does the investment match your objectives?
9. How easy would it be to sell your investment later?
10. Does the investment originate overseas?
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 22
Investment ObjectivesInvestment Objectives
• Income
• Growth
• Safety
• Liquidity
• Tax concerns
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 23
Investment PortfolioInvestment Portfolio
• Rate of return
–Asset allocation
–Diversification
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 24
Buying and Selling Buying and Selling SecuritiesSecurities
Market OrderMarket Order
Limit OrderLimit Order
Day OrderDay Order
Margin TradingMargin Trading
Stop OrderStop Order
Open OrderOpen Order
Discretionary OrderDiscretionary Order
Short SellingShort Selling
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 25
Analyzing Financial NewsAnalyzing Financial News
• Bull market
–Rising market
• Bear market
–Falling market
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 26
Watching Market Watching Market Indexes and AveragesIndexes and Averages
• Dow Jones Industrial Average (DJIA)
• Standard and Poor’s 500 (S&P 500)
• Wilshire 5000
• NASDAQ Composite Index
• Nikkei 225 Index
• FT-SE 100 Index
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 18 - 27
Interpreting Financial Interpreting Financial NewsNews
• Stock exchange reports
• Bond quotation tables
• Mutual fund quotations