Textbook Notes (369,204)
Canada (162,462)
RSM100Y1 (431)
John Oesch (214)
Chapter 19

RSM 100 - Chapter 19 - Summary Notes

5 Pages

Rotman Commerce
Course Code
John Oesch

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RSM 100Y – Chapter 19: Understanding Securities and Investment Securities Market Stocks and bonds are known as securities because they represent asset-based claims, where stocks is a claim to ownership and bonds a claim to debt. Primary Market Newly issues shares through IPOs from the firm or government. Secondary Market Trading between investors of previously issued shares Investment Banker 1. Advise the company on the timing and financial terms for the new issue 2. Underwrite the securities during IPOs for resale 3. Create distribution network that moves shares around places Stocks Common Stock No dividends, but voting power and ownership  Riskiest security Par Value: Face value of the share, rarely used in Canada Market Value: The real value of a share, it’s the current price determined by the market reflecting the buyer’s willingness to invest in a company. Book Value = Owners Equity/Number of outstanding shares Blue-Chip Stock: Stock of financially sound firms Market Capitalization Market value of a company’s stock listed on a stock exchange Preferred Stock Issued with par value, pays dividends, no voting power, less risk  Can be callable, where the firm forcibly recalls a stock for cash This price is known as the call price and is predetermined  Can be cumulative which allows the shareholder to claim unpaid dividends over the ownership of their stock Stock Exchanges An institutional setting where stocks are bought and sold Trading Floor: Trading is only allowed in this area, it is regulated as well by time when the market opens and closes Brokers People who work for the exchange to trade stocks on behalf of others Discount Brokers Offers investors a cheap way to invest in the stock market, but do not give investment advice or sales consultation. Online Trading Allows people to trade from their own home, driving down broker costs so people will be enticed to use their services Full-Service Brokers Useful for new and uninformed investors, or experienced investors who do not have the time to trade, they provide all the services you need to make sound investment decisions since they’re experts Unlike other styles of brokers, one has access to IPOs. Canadian Stock Exchanges: TSE, CDNX (Junior Companies) Foreign Stock Exchanges: NYSE, AMEX, NIKKEI Over-the-Counter Market (OTC)  Bonds trade here Very informal, no trading floor and instead trades unlisted securities NASDAQ and NASD Electronic stock market system, and the largest private securities regulator  Newer firms are listed here Bonds (Trade on the OTC) Essentially an IOU to the borrower to pay back the money they lent. The price of borrowing of the company is paid as interest to the creditor. Government Bonds CSBs, by far the safest security on the market, low interest generally, though longer maturities carry higher interest rates. Corporate Bonds Major source of long-term financing for Corporations, with maturities from 10 to 30 years in length, usually longer term bonds carry more risk and higher rates Registered Bonds: Registers the name of the holder and mails out cheques to them for interest. Bearer/Coupon Bonds Require shareholders to clip coupons from certificates to claim payments. Secured Bonds Reduced risk by backing the lent money with assets to be liquidated. Unsecured Bonds (Debentures) Ba
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