BU111 Lecture Notes - Lecture 2: Preferred Stock, Canadian Imperial Bank Of Commerce, Common Stock
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Financial institutions exist to facilitate the flow of money. Chartered banks: public, profit seeking, oligopoly (td, cibc, scotia, bmo, etc. ) Investment dealers: primary markets (banks and dealers), secondary markets (tsx) Represent ownership in an issuing company, equity = all shares equal common stock: voting rights, no promised dividends. Preferred stock: no voting rights, divided promises in exchange for silence. Price: present value of expected future cash flow, anything above = supply and demand future returns: general environment, industry conditions, management choices. Why stocks: give leverage (margin), create potential to make larger returns. Must quality for margin and sign agreement, pay interest on margin, remain over margin requirement. Going long, max profits = infinite, max loss = initial investment. Sell shares you don"t own (borrow from broker) at high price, buy back at lower price. Rules: 150% market value deposit, maintenance margin, could be forced to cover, dividends are the responsibility of seller (shorter)
