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Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-10
Top Stock Exchanges
1. This slide profiles the largest stock exchanges in
the world.
2. To be listed on the NYSE, the company must have
at least 2,200 shareholders, average daily volume of
at least 100,000 shares, a market cap of $750 mil-
lion, or pretax earnings of $10 million.
3. NASDAQ is an acronym that stands for the Nation-
al Association of Securities Dealers Automated
Quotations.
4. London Exchange merged with the Italian Ex-
change, both of which have been operating for over
200 years.
5. Tokyo exchange operated a trading floor for 120
years. In 1999, the trading floor was closed as the
Tokyo Stock Exchange went to all-electronic trad-
ing similar to NASDAQ.
6. The Deutsche Borse is located in Frankfurt, Ger-
many.
PPT 19-11
A Place for Small Companies
to Call Home
PPT 19-18
Progress Assessment
1. Advantages of issuing stock include the following:
equity never has to be repaid, the company is under
no legal obligation to pay dividends, and selling
stock can improve a company’s balance sheets
since it doesn’t create debt. Disadvantages are that
equity holders have the right to vote, dividends are
not tax-deductible, and the need to keep sharehold-
ers happy can affect managers’ decisions.
2. Common stockholders have the right to vote, while
preferred stockholders do not. Preferred stockhold-
ers have rights if the company enters bankruptcy.
Preferred stockholders receive a fixed dividend,
while common holders are not guaranteed to be
paid a dividend.
PPT 19-19
Learning the Language of Bonds
Unlike dividends, interest payments are tax-deductible.
PPT 19-20
Advantages of Issuing Bonds
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-21
Disadvantages of Issuing Bonds
PPT 19-22
Bond Ratings
The rating agencies of Moody’s and Standard & Poor’s
have been under fire for highly rating some of the invest-
ment firms that issued mortgage-backed securities. For ex-
ample, Lehman Brothers received positive ratings within
days of its collapse.
PPT 19-23
Different Classes of Corporate Bonds
PPT 19-24
Special Features in Bond Issues
PPT 19-25
Progress Assessment
1. Bonds are considered debt financing, since they
must be paid back when the bond matures.
2. A 9% debenture bond due in 2025 has a coupon
rate or interest rate of 9% and matures in 2025.
3. A secured bond is backed by some form of collat-
eral while an unsecured bond or debenture is not
backed or secured by any collateral.
4. Convertible bonds are attractive because they give
bondholders the option to convert their bonds into
stock. This is attractive since stocks tend to appre-
ciate faster than bonds do.
PPT 19-26
Buying Securities
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-27
Money Going Up in Smoke
PPT 19-28
Five Investment Criteria
PPT 19-29
Investment 101
1. Some people want to jump right into an investment.
2. This slide shows three ways to learn about invest-
ment strategies.
3. Ask the students, Would you take an investing class
or jump straight into the market? Would you know
how to do the needed research?
19-69
PPT 19-33
Primary Investment Services
Consumers Need
1. This slide presents the needs of consumers when it
comes to financial planning.
2. Today’s brokers provide more than simply the buy-
ing and selling of stocks and bonds.
3. Companies like Charles Schwab and Fidelity help
individuals plan for the future.
PPT 19-34
Progress Assessment
1. The main advantage of investing through online
brokers is that the fees charged tend to be lower
than traditional brokers. The key disadvantage is
that investors must generally do their own research
and make their own investment decisions without
direct assistance from their broker.
2. The goal of diversification is to reduce the overall
risk an investor assumes.
PPT 19-35
Perceptions of the Market
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-36
Bear Market Declines in the S&P 500
1. This slide profiles the bear market declines between
1968 and 2009.
2. The past decade has been abysmal with two signifi-
cant bear markets.
3. Have students think about the times when bear
markets have caused declines in the S&P. What
was going on in the country or world at these
times? What might have been the causes of these
bear markets? What were the effects?
PPT 19-37
Selecting Stocks
PPT 19-38
Stock Splits
1. An important point to note is investment value does
not change immediately after the stock split. The
investor has the same original dollar value as before
the split. The hope for the investor is that the lower
price will cause the demand for the stock to in-
crease, raising the stock price (which will increase
the total investment value since the investor has
more shares due to the stock split).
2. Dividend rates are also divided according to the de-
gree of split.
25,600 shares after adjusting for splits!
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-39
Buying Stock on Margin
Students should know the risk associated with buying
stocks on margin. Investors purchasing on margin are in-
creasing their purchasing power, so they can own more
stock without fully paying for it. Margin exposes investors
to the following risks:
• You can lose more money than you invested.
• You may have to deposit additional cash or secu-
rities in your account on short notice to cover
market losses.
• You may be forced to sell some or all of your se-
curities when falling stock prices reduce the val-
ue of your securities.
• Your brokerage firm may sell some or all of your
securities without consulting you to pay off the
loan it made to you.
• Know that your firm charges you interest for
borrowing money, which will affect the total re-
turn on your investments.
PPT 19-40
Understanding Stock Quotations
Stock quotations are now readily available on numerous
websites.
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
19-72
PPT 19-41
Top Financial News and
Research Sites
1. Financial information is now readily available
online. This slide lists some of the sites where in-
formation can be easily gathered.
2. If time allows, encourage students to visit these
websites and evaluate their usefulness.
3. Ask the students, Which of these websites was the
best? Why would it be a good idea to consult more
than one of these sites before deciding to invest?
PPT 19-42
Important Bond Questions
PPT 19-43
Understanding Bond Quotations
A junk bond has a rating of BB or less.
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
19-73
PPT 19-44
Investing in Mutual Funds and
Exchange-Traded Funds
PPT 19-45
What Mutual Funds Can
Learn from KaChing
1. KaChing is a website where professional investors
share everything about their portfolios.
2. Fast Company shows how KaChing can help inves-
tors understand what they’re getting into.
3. The magazine uses the example of Morningstar and
how most of its portfolio managers didn’t invest in
their own funds. Potential investors would like to
know information like that!
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-46
Percentage of Households
Owning Mutual Funds
1. This slide presents the percentage of U.S. house-
holds owning mutual funds between 1980 and
2010.
2. Ask the students, do you or your parents own mu-
tual funds? How did they get involved in purchas-
ing them, and what type of research do they do be-
fore buying them? Did they develop investment ob-
jectives or was it based on some tip or advice?
3. Point out to the students that people may get into
investing for the right reasons and with the right in-
tentions (retirement, savings for college, vacations,
home buying, etc.). However, it is very important to
maintain discipline. Many people, if not most, de-
viate from these investment objectives and start to
invest based on the so-called hot tip. Mutual funds
should be treated as investments that you commit to
based on researched information and not hot tip or
quick hit gambling.
PPT 19-47
Varieties of ETFs
1. This slide lists three varieties of ETFs that are
available.
2. ETFs have numerous benefits when compared to
mutual funds. If time permits, have students prepare
a list of and/or discuss the advantages of ETFs.
(Transparent pricing, lower fees, and returns at
least equal to the index that the ETF tracks are just
some of the advantages students might discuss.)
3. Traditional ETFs include SPY, which tracks the
S&P 500, and TIP, which tracks inflation-protected
government bonds.
4. Niche ETFs include IXJ, which tracks the S&P
Global Healthcare Sector.
5. Exotic ETFs include FXA, which tracks the Aus-
tralian Dollar, and GLD, which tracks the price of
gold.
19-77
PPT 19-52
Market Turmoil
PPT 19-53
Turmoil in the 2000s
PPT 19-54
The Wall Street of Now
1. Since the economic crisis hit, Wall Street has taken
many cuts.
2. This slide shows how Bloomberg Businessweek
sees the new way for Manhattan bankers to unwind.
Chapter 19 - Using Securities Markets for Financing and Investing Opportunities
PPT 19-55
The Ups and Downs of the Market
1. The downturn of 1987 prompted the U.S. exchang-
es to create mechanisms called curbs and circuit
breakers to restrict program trading whenever the
market moves up or down by a large number of
points in a trading day. A key computer is turned
off and program trading is halted.
2. If you watch programming on CNBC or MSNBC,
you’ll see the phrase “curbs in” appear on the
screen.
PPT 19-56
Who’s at Fault for the
Economic Crisis?
1. This slide reviews some of the players in the eco-
nomic crisis.
2. Like all complex problems, this crisis was not
caused by one group.
3. You could actually include another culprit (not
listed on this slide): worldwide saving surplus. Gulf
states, China, Japan, and Brazil all reinvested ex-
port earnings in U.S.-dominated assets, primarily
government bonds. This had the effect of keeping
interest low, thus allowing consumers and the U.S.
government (as well as many state and local gov-
ernments) to spend beyond their means, racking up
massive consumer and federal debt.
4. To discuss the crisis ask the students, Who’s at
fault for the economic crisis? (When discussing this
highly charged topic it is important to make sure
students understand that the fault lies not just with
Wall Street and Washington, but with consumers,
including themselves.)
