financing and investing
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Financing and Investing. Securities. Three major asset classes Cash Bonds (fixed income) Equities Asset allocation The percent of your assets in each asset category. Securities. Equities. Stock Common Stock Share of ownership in a company. - PowerPoint PPT PresentationTRANSCRIPT
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Financing and Investing
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SecuritiesSecurities
● Three major asset classes– Cash– Bonds (fixed income)– Equities
● Asset allocation– The percent of your assets in each asset
category
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SecuritiesSecurities
Risk Return
Cash Very low Low
Bonds (fixed income)
Moderate – High Moderate
Stocks High High
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EquitiesEquities
● Stock– Common Stock
Share of ownership in a company. Common stock owners can vote on
major company decisions They expect to receive cash dividends
and to benefit from capital gains. (Often no dividends are issued.)
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EquitiesEquities
● Stock– Preferred Stock
Stock whose holders receive preference in the payment of dividends
Seldom confers voting rights Dividends are fixed
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EquitiesEquities
● Stock– Convertible Securities
Bonds or stock that contains a conversion feature
Gives the holder the right to exchange their securities for a fixed number of shares of common stock
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Securities PurchasersSecurities Purchasers
● Investment Motivations– Primary Investment Objectives by Type
of Security
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Securities ExchangesSecurities Exchanges
● Stock Exchange—centralized marketplace where primarily common stock are traded.– Stock exchanges are secondary markets,
selling securities which have already been issued by firms and sold in the primary market
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Securities ExchangesSecurities Exchanges
● The New York Stock Exchange– NYSE (Big Board)—the largest, and
probably the most famous, stock market in the world
– Also one of the oldest, founded in 1792
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Securities ExchangesSecurities Exchanges
● The NASDAQ Stock Market– NASDAQ stock market—second-largest
stock market in U.S., trading stock issues of firms that are typically smaller, less well-known than those on the NSYE
– Made up of many technology companies
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Securities ExchangesSecurities Exchanges
● Foreign Stock Markets– Virtually all developed, and many
developing, countries have stock exchanges
– Examples include Bombay, Helsinki, Hong Kong, Mexico City, Paris, and Toronto
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Buying and Selling SecuritiesBuying and Selling Securities
● Brokerage Firm—financial intermediary that buys and sells securities for individual and institutional investors.
● E*trade: An Online Brokerage Firm
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Buying and Selling SecuritiesBuying and Selling Securities
● Placing an Order– A market order instructs a brokerage firm
to obtain the highest price possible – if the investor is selling – or the lowest price possible – if the investor is buying
– A limit order instructs the brokerage firm not to pay more than a specified price for stock if the investor is buying, or accept less than a specified price if the investor is selling
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Costs of TradingCosts of Trading
● When investors buy or sell securities through a brokerage firm, they pay a fee
● These costs vary widely among brokerage firms
● A full-service firm charges higher fees, but provides a large number of services and offers investment advice
● A discount firm charges lower fees, but offers less advice and fewer services
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How’s the Market Doing?How’s the Market Doing?
● Bull market● Bear market
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Business News and InformationBusiness News and Information
● Bloomberg radio, AM 1170● CNBC● The Wall Street Journal● Online:
– cnn.money.com, – finance.yahoo.com– google.com/finance– bloomberg.com– vanguard.com, – fidelity.com