BUS110 Chapter 19 - Securities Market
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The document discusses securities markets and how they serve two primary functions: assisting businesses in finding long-term funding through stocks and bonds, and providing private investors a place to buy and sell these securities. It defines stocks and bonds, explaining how they differ in terms of ownership, repayment, and interest/dividends. It also outlines some advantages and disadvantages of issuing stocks versus bonds for businesses.
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BUS110 Chapter 19 - Securities Market
- 1. * * Chapter Nineteen Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Using Securities Markets for Financing and Investing Opportunities
- 18. How Stock Splits Work 19- 100 shares of ABC stock selling at $80 100 shares @ $40 100 shares @ $40 100 shares @ $45 100 shares @ $45 2 for 1 Stock Split Declared Lower Price increases Demand Increased demand increases price How Much Profit Has Been Made?
- 21. Current DJIA 30 19- DJIA 30
Editor's Notes
- Also available on a Transparency Acetate See Learning Goal 2: Compare the advantages and disadvantages of debt financing by issuing bonds, and identify the classes and features of bonds. See Learning Goal 3: Compare the advantages and disadvantages of equity financing by issuing stock, and explain the differences between common and preferred stock. See text pages: 513-517 Debt vs. Equity Financing This slide compares the differences between debt and equity financing, something that students clearly need to understand. Important points to reinforce from this slide: The fact that bond interest must be paid when called for and full repayment made at the maturity date. Equity financing denotes ownership in the corporation. Stock dividends do not have to be paid to owners of stock. Share with the students the following example of debt and equity financing: A company intends to build a plant for a total cost of $15 million and will use the following combined steps to finance the project: Sell 1.5 million shares of common stock at $5.00 per share, for a total of $7.5 million Sell Secured Bonds for $7.5 million due in 10 years Obtain an operating line funds for $500,000 for security
- See Learning Goal 1: Identify and explain the functions of securities markets, and discuss the role of investment bankers. See text pages: 512
- See Learning Goal 4: Describe the various stock exchanges where securities are traded. See text pages: 519-521
- Also available on a Transparency Acetate See Learning Goal 7: Explain the opportunities stocks offer as investments. See text pages: 527 How Stock Splits Work This slide covers how stock splits work in the investment market. 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 as the demand for the stock increases, the value of the stock rises, (which will increase their total investment value since they have more shares due to the stock split. Dividend rates are also divided according to the degree of split. Most stock splits are two-for-one splits.
- Also available on a Transparency Acetate See Learning Goal 10: Explain securities quotations listed in the financial section of the newspaper, and describe how stock market indicators like the Dow Jones Industrial Average affect the market. See text pages: 535 The Original 12 Dow Stocks This slide offers students some rather interesting information. These are the original twelve stocks Charles Dow used in first determining the Dow-Jones Industrial Averages. Students may be interested to see that the only company that’s still a current Dow stock is General Electric. The chapter gives rather extensive coverage to the Dow and the relevance of the Dow to the market. Make sure students understand that the Dow is just a bellwether of the direction the market is headed. Even if the Dow is increasing, there’s no guarantee your stock will be going up.