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MGTA01H3 Chapter Notes -Rbc Dominion Securities, Stock Exchange, Investment Banking

Management (MGT)
Course Code
Chris Bovaird

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Ch 11- securities market
Securities: stocks and bonds (which represent a secured-asset-based claim on the part
of investors) that can be bought and sold
oThe markets in which stocks and bonds are sold are called securities markets
Primary securities markets: the sale and purchase of newly issued stocks and bonds by
firms or governments
Investment banker: any financial institution engaged in purchasing and reselling new
stocks and bonds
Some firms like RBC Dominion Securities and D Securities 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
Secondary securities: the sale and purchase of previously issued stocks and bonds
oShare values are expressed in two different ways: as market value and as book value
1. Market value: the current price of one share of a stock in the secondary securities
market; the real value of a share
*Market value: current price of a share on the stock market
--market price of a share can be influenced by both objective factors (e.g., a company's
profits) and by subjective factors (e.g., rumours, investor relations, and stockbroker
2. Book value=total owners' equity / number of shares of stock
--book value is used as a comparison indicator because, for successful companies, the
market value is usually greater than its book value
Market capitalization: the dollar value (market value)of stocks listed on a stock exchange
market capitalization=number of outstanding shares * the value of each share
dividends paid=dividend percent * stated value (for preferred share)
oThe issuing firm can require the preferred shareholders to surrender their shares in
exchange for a cash payment, known as the call price
oBecause of its preference on dividends, preferred shares' income is less risky than the
common shares of the same company. Moreover, most preferred shares are cumulative
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