© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 18 - 1 Securities.

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 18 - 1

SecuritiesSecurities


Chapter 18 - 2

Securities InvestmentsSecurities Investments

• Stocks

• Bonds

• Mutual funds


Chapter 18 - 3

Stocks: Important TermsStocks: Important Terms

• Stock certificate

• Authorized stock

• Issued stock

• Unissued stock

• Par value

• Stock split


Chapter 18 - 4

Common StockCommon Stock

• Voting rights

• Dividends

• Limited liability

• Liquidity


Chapter 18 - 5

Preferred StockPreferred Stock

• Convertible preferred stock

• Cumulative preferred stock


Chapter 18 - 6

Corporate BondsCorporate Bonds

• Secured bonds

• Debentures

• Convertible bonds


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


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


Chapter 18 - 9

Retirement of DebtRetirement of Debt

• Serial bonds

• Term bonds

• Sinking fund

• Callable bonds


Chapter 18 - 10

Mutual Funds: Important Mutual Funds: Important TermsTerms

• Load fund

• No load fund

• Open end fund

• Closed end fund


Chapter 18 - 11

Types of Mutual FundsTypes of Mutual Funds

• Money market

• Growth

• Balanced

• Income

• Global

• International

• Index


Chapter 18 - 12

Options and Financial Options and Financial FuturesFutures

• Call options

–Buyers

–Sellers

• Put options

–Buyers

–Sellers


Chapter 18 - 13

Speculating in Speculating in CommoditiesCommodities

• Agricultural products

• Raw materials


Chapter 18 - 14

Securities MarketSecurities Market

• Primary

– Initial public offerings

• Secondary

–Stock exchanges


Chapter 18 - 15

Types of Stock Types of Stock ExchangesExchanges

• Auction

–NYSE

• Dealer

–NASD

• Electronic

–ECNs


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


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


Chapter 18 - 18

Changing Securities Changing Securities MarketplacesMarketplaces

• Online trading

• Extended hours


Chapter 18 - 19

Regulation of Securities Regulation of Securities MarketsMarkets

• Federal laws

• State laws

• Industry self-regulation


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?


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?


Chapter 18 - 22

Investment ObjectivesInvestment Objectives

• Income

• Growth

• Safety

• Liquidity

• Tax concerns


Chapter 18 - 23

Investment PortfolioInvestment Portfolio

• Rate of return

–Asset allocation

–Diversification


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


Chapter 18 - 25

Analyzing Financial NewsAnalyzing Financial News

• Bull market

–Rising market

• Bear market

–Falling market


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


Chapter 18 - 27

Interpreting Financial Interpreting Financial NewsNews

• Stock exchange reports

• Bond quotation tables

• Mutual fund quotations

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 18 - 1 Securities.

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