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Chapter 10 PowerPoint
 

Chapter 10 PowerPoint

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    Chapter 10 PowerPoint Chapter 10 PowerPoint Presentation Transcript

    • STOCK [EQUITY] MARKETS CHAPTER 10
    • PRIVATE EQUITY
      • Venture Capital
        • Financing for high risk start-up ventures
        • Dollars for Equity position
        • VC profits when venture goes public (IPO)
          • Secondary registration required
    • PUBLIC EQUITY: COMMON STOCK
      • Corporate Charter; shareholder rights
        • Elect directors
        • Amend the charter
        • Raise capital
        • Approve mergers
        • Preemptive rights
      • Classes Of Common
        • Voting
        • Non-Voting
        • Weak voting
    • PUBLIC EQUITY: COMMON STOCK
      • Lettered stock;
        • Privately issued to investors resale
        • Covered by SEC rules (i.e., 144a)
      • D. Rights Offerings
        • Right granted by the corporate charter
        • New shares must be offered to current holders (rights)
        • Rights (R) may be exercised or sold to public
    • PREFERRED STOCK
      • Hybrid Security
        • Fixed payouts like bonds
        • An equity investment like common
      • Attributes Of Preferred Stock
        • Par value; meaningful in bankruptcy or liquidation
        • Cumulative Features; missed dividends must be made up
        • Participating; in years of high profits, an extra dividend
        • Non-Voting; except as provided in corporate charter
        • Convertibility; typically into common
    • NEW ISSUES OF STOCK (IPOS)
      • Typically below current market prices
      • Process
        • Developing Prospectus
        • Price the issue
        • Distribute the issue
        • Transaction Costs: Spread, fees
      • Shelf Registrations
        • Corporation can plan issues up to two years to completion
        • Permits issuer to time issuance for best price action
    • SECURITY MARKETS
      • Organized Exchanges
        • NYSE, AMEX, Tokyo (TSE), London (LSE), etc
        • Restricted participation, trading rules strictly specified
        • Traders (members) own seats (Specialists, Floor traders) except NYSE – buy “license” to trade
        • Sale of seats must be approved (Pre-qualifications must be met)
        • Transactions tend to be centralized; advantageous for price discovery
    • SECURITY MARKETS
      • Over-The-Counter (OTC) NASDAQ,
        • Government Sec, Money Markets, Foreign Exchange
        • Transactions tend to be decentralized; price discovery less efficient
        • Liquidity more expensive in terms of bid-ask spreads
        • Bulletin Board: price listing for "penny" stocks
        • Pink Sheets: teeny-tiny fractional price low volume stocks
    • SECURITY MARKETS
      • Stock Market Information
        • Ticker Symbol
        • 52-Week Price Range (Hi-Lo)
        • Dividend
        • Dividend Yield
        • Price-Earnings Ratio (TTM)
        • Volume (in hundreds = round lots)
        • Closing Price, change from previous close
        • Indexes (DJIA, SP500, NASDAQ)
    • SECURITY MARKETS
      • Auction Markets
        • Orders of traders are directly matched
        • NYSE Members may act as dealers (specialists) or brokers (traders)
      • E. Cost of Liquidity Services: Bid–Ask Spread
        • Bid = highest unexecuted price to buy
        • Ask = lowest unexecuted price to sell
    • MARKET MONITORING
      • SEC: reporting requirements
        • www.sec.gov/edgar (web site for SEC reports)
      • Sarbanes-Oxley (2002)
        • Cannot audit books of firm any one of whose CEO or CFO formerly worked for the auditing firm
        • Require outside directors to be on audit committee
        • Members of audit committee may not receive special compensation
        • Require CEO / CFO certification of correctness
        • Failure to comply draws fines and imprisonment
    • HOMEWORK QUESTIONS
      • What characteristic of preferred stock causes sensitivity to interest rate changes?
      • What does it mean when a preferred stock is cumulative & participating ?
      • What are preemptive rights and why are they important to common stockholders?
      • How do we measure the cost of liquidity?
      • How does an auction market differ from a dealer market?
      • What has been the major impact of Sarbanes-Oxley on the stock markets?