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MGTA02H3 (363)
Chapter 9

chapter 9 notes

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Department
Management (MGT)
Course
MGTA02H3
Professor
Chris Bovaird
Semester
Winter

Description
Chapter 9 Understanding Securities and Investments Notes Securities Markets N securities stocks and bonds (which represent a secured-asset-based claim on the part of investors) that can be bought and sold N in other words, holders of stocks and bonds have a stake in the business that issued them N stockholders have claims on some of a corporations assets (and a say in how the company is run) because each share represents pat ownership; in contrast, bonds represent strictly financial claims for money owed to holders by a company N the markets in which stocks and bonds are sold are called securities markets Primary and Secondary Markets for Securities N primary securities markets the sale and purchase of newly issued stocks and bonds by firms or governments N new securities are sometimes sold to one buyer or a small group of buyers N these so-called private placements allow the businesses that use them to keep their plans confidential Investment Banking N most new stocks and some bonds are sold to the wider public market N to bring a new security to market, the issuing corporation must obtain approval from a provincial securities commission N investment banker any financial institution engaged in purchasing and reselling new stocks and bonds N such well-known firms provide three types of investment banking services: 1) They advise the company on the timing and financial terms for the new issue. 2) By underwriting (buying) the new securities, investment bankers bear some of the risk of issuing the new security. 3) They create the distribution network that moves the new securities through groups of other banks and brokers into the hands of individual investors. N secondary securities market the sale and purchase of previously issued stocks and bonds N the secondary securities market is handled by organizations such as the Toronto Stock Exchange Stocks N each year, financial managers, along with millions of individual investors, buy and sell the stocks of thousands of companies N this widespread ownership has become possible because of the availability of different types of stocks and because markets have been established for conveniently buying and selling them Common Shares N individuals and other companies buy a firms common shares in the hope that the shares will increase in value, affording them a capital gain, andor will provide dividend income N share values are expressed in two different ways: as market value and as book value Market Value N market value the current price of one share of a stock in the secondary securities market; the real value of a share N the market price of a share can be influenced by both objective factors (e.g., a companys profits) and by subjective factors N subjective factors include rumours (unverified information such as a claim that a company has made a big gold strike), investor relations (playing up the positive aspects of a companys financial condition to financial analysts and financial institutions), and stockbroker recommendations (a recommendation to buy a stock may increase demand for the stock and cause its price to increase, while a recommendation to sell can decrease demand and cause the price to fall) Book Value N owners equity the sum of a companys stated capital, retained earnings, and additional paid-in capital N book value value of a common stock expressed as total owners equity divided by the number of shares of stock N book value is used as comparison indicator because, for successful companies, market value is usually greater than book value N when market price falls near book value, some investors buy stock on principle that it is underpriced and will increase in future Investment Traits of Common Shares N uncertainties about the stock market itself can quickly change a given stocks value N when companies have unprofitable years, they often cannot pay dividendsshareholder income and share price may both drop N at the same time, however, common shares offer high growth potential N naturally the prospects for growth in various industries change from time to time, but the blue-chip stocks of well-established, financially sound firms such as IBM and Imperial Oil have historically provided investors with steady income through consistent dividend payouts as well as long-term capital gains What is a Blue-Chip Stock? N blue-chip stocks stocks of well-established, financially sound firms N market capitalization the dollar value (market value) of stocks listed on a stock exchange N market capitalization is computed by multiplying the number of a companys outstanding shares times the value of each share Preferred Shares N preferred shares are usually issued with a stated price N dividends paid on preferred shares are usually expressed as a percentage of the stated value N some preferred shares are callablethe issuing firm can require the preferred shareholders to surrender their shares in exchange for a cash payment, known as the call price, which is specified in the agreement between the preferred shareholders and the firm Investment Traits of Preferred Shares N because of its preference on dividends, preferred shares income is less risky than the common shares of the same company www.notesolution.com
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