The document discusses key topics relating to financial markets and securities. It provides information on the role of financial markets in the US economy and key players such as companies, individuals, and organizations. It also outlines major types of securities like common stock, preferred stock, and bonds. The document discusses how financial markets are regulated and some of the major laws governing their operations.

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© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

2. 10
Finance:
Acquiring and Using
Funds to Maximize Value
LO1 What is the role of financial markets in
the U.S. economy? Who are the key
players?
LO2 What are the key laws that govern the
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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way financial markets operate and
what is the impact of these laws?
LO3 What are the major types of securities
that are traded in securities markets?
LO4 How are securities issued in the
primary market and traded in
secondary markets?
LO5 What strategies do investors use to
invest securities?
LO6 How do you interpret the information
provided in the stock quotes available
on financial websites?

3. The Role of Financial Markets
• Financial markets transfer funds from savers to
borrowers
• Companies access financial resources to invest,
meet payroll, and develop new products
• Individuals, organizations and YOU are all key
players in financial markets
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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4. Financial Institutions
• Depository Institutions
 Commercial banks
 Credit unions
 Savings and loan associations
• Nondepository Financial Institutions
 Institutional investors
 Securities brokers
 Securities dealers
 Investment Banks
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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5. Congress Decides It’s
Time to Trim the Hedges
• Hedge funds are mutual funds for millionaires
• The number of investors are limited
• Investors must meet wealth standards
• In the past there was no strict regulation
• There have been spectacular payoffs and
extreme failures
• Unethical behavior grew from the lack of
regulation
• The 2010 Dodd-Frank Act created much
needed regulation
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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© Colin Anderson/Blend Images/Jupiterimages
Source: "Growth in Hedge Fund Fraud," Securities and Exchange Commission website: http://www.sec.gov/rules/final/ia-2333.htm#IB; "A Brief History of Hedge Fund Adviser Registration and Its Consequences for Private Equity and Venture Capital Advisers," by William J. Sjostrom, Harvard Business Law Review website: http://www.hblr.org/2011/02/a-brief-history-of-hedge-fund-
adviser-registration-and-its-consequences-for-private-equity-and-venture-capital-advisers/; The Running of the Hedgehogs by Duff McDonald, New York Magazine website: http://nymag.com/news/features/2007/hedgefunds/30341/; “Galleon Wiretaps Rattle Hedge Funds as Insider Trading Targeted,” by Katherine Burton and David Glovin, Bloomberg website:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=as8seXJpbDUY; “Some Lessons from the Rescue of Long-Term Capital Management,” by Joseph G. Haubrich, Federal Reserve Bank of Cleveland website: http://www.clevelandfed.org/research/POLICYDIS/pdp19.pdf

6. Regulating Financial Markets to Protect
Investors and Improve Stability
• Savers and borrowers need confidence
in financial institutions
• The crisis of 2008 is an example of the
financial markets malfunctioning
• U.S. experienced bank failures in 1907,
early 1930s, and 1908s
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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7. Financial Regulation
• Early Efforts:
 Federal Reserve Act of 1913 – created the FED
 Banking Act of 1933/Glass-SteagallAct – established the
Federal Deposit Insurance Corporation
 Financial Services Modernization Act of 1999/Gramm-
Billey-Leach Act – reversed Glass-Steagall
• Recent Developments:
 Sarbanes-Oxley Act of 2002 – fair external audits
 Dodd-Frank Act of 2010 – extended authority over
nondepositoryinstitutions
7 Source: Public Company Accounting Oversight Board website: http://pcaobus.org/Pages/default.aspx,“Brief Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act,” United States Senate Committee on Banking, Housing and Urban Affairs website:
http://banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

8. Investing in Financial Securities
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Three major types of securities
that are traded in markets:
Common Stock
Preferred Stock
Bonds

9. Corporate Ownership
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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10. Common Stock
The basic form of ownership in a corporation
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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• Voting Rights
• Right to Dividends
• Capital Gains
• Preemptive Rights
• Right to Residual Claim on Assets

11. Preferred Stock: Getting
Preferential Treatment
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Stock that gives its holder preference over common
stockholders
 Claim on Assets
 Payment of Dividends (stated amount)
 Cumulative Feature

12. Bonds: Earning Your Interest
Long-term debt issued by a corporation or government
• Maturity Date – the date the bond comes due
• Par Value – face value
• Premium – bond is above par
• Discount – bond is below par
• Coupon Rate – interest payment as percentage of par value
• Current Yield – interest payment as percentage of current
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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market price
Bonds are a legal obligation. Companies issued century
bonds in the 1990s.
Source: “Are Bond Buyers This Crazy?” by Dan Caplinger, Motley Fool website: http://www.fool.com/investing/dividends-income/2010/08/26/are-bond-buyers-this-crazy.aspx

13. Could Your Best Investment
Be a Piece of Junk?
• Junk bonds are bonds issued by companies with poor
credit ratings
• Junk bonds offer a higher rate of interest (and risk)
• In 2007, only 22 companies in the world defaulted in
their bonds
 During the recession in 2008, the number soared to 126
• In late 2008, investing in junk bonds became a hot
strategy
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Source: Defaults Stacking Up in the Junk Bond Market by Tom Petruno, Los Angeles Times website: http://latimesblogs.latimes.com/money_co/2009/01/junk-bonds-the.html January 26, 2009; There’s Plenty of Juice in Junk Bonds by Mina Kimes,
Fortune magazine, March 2, 2009, p. 40; Junk Bond Yields Are Crazy High, But Tread Carefully by John Waggoner, USA Today, December 5, 2008, Money Section, p. 3b.

14. Convertible Securities
• Convertible securities – bonds or preferred stock
that investors exchange for common stock
• Conversion ratio is the number of shares exchanged
for each convertible security
 Conversion ratio of 20
 Each security can be exchanged for 20 shares
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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15. Mutual Funds and ETFs:
Diversification Made Easy
Mutual Funds
 Diversification
 Professional Management
 Variety
 Liquidity
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Exchange Traded Funds
• Features of stocks and
mutual fund
• Ownership in a “market
basket” of stocks
• You can buy and sell
ETFs any time of the
day, unlike Mutual
Funds

16. Does Green Investing
Earn Green Returns?
• “Green” mutual funds select stocks based on
environmental consideration
• Do these funds provide a return?
• The Winslow Green Growth Fund has an average annual
return of 12.27%
• Portfolio 21 Fund performed much better than the S & P
500 over a 5-year period
• Over short periods, these funds did experience big
fluctuations
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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© The Studio Dog/Photodisc/Getty Images
Source: Finding the Right Green Fund by Eugenia Levenson, Fortune magazine website November 6, 2008: http://money.cnn.com/2008/11/05/magazines/fortune/levenson_greenfunds.fortune/index.htm; Green Investments for Launderers by Will Ashworth, Investopedia website April 7, 2008:
http://community.investopedia.com/news/IA/2008/Green_Investments_For_Launderers.aspx?partner=YahooSA; Winslow Green Growth Fund Performance, Winslow Management Company website: http://www.winslowgreen.com/fund/performance.aspx, accessed April 25, 2011; Portfolio 21 Performance, Portfolio 21 Investments website:
http://www.portfolio21.com/in_depth_perf.php, accessed April 25, 2011; New Alternatives Fund Annual Report, December 31, 2010: http://www.newalternativesfund.com/returns/NAF-AR-2009.pdf, accessed April 25, 2011.

17. The Primary Securities Market: Where
Securities Are Issued
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Public Offering:
Securities are sold
to anyone in the
investing public
Private Placement:
Ownership by a
small number of
people

18. Trading Securities:
The Secondary Market
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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© The Studio Dog/Photodisc/Getty Images
Security Exchanges
• New York Stock Exchange
• NASDAQ
• Currently the two largest exchanges
in the U.S.
• A wave of mergers of exchanges are
taking place
Over the Counter Market
Electronic Communication
Networks
©Songquan Deng / Shutterstock.com

19. Over-the-Counter Market
• Many corporations do not meet requirements to list
on organized exchanges
 Listing can be expensive
• OTC are traded through a system of market makers
• The market for OTC stocks is much less active than
exchanges
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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20. Electronic Communications Networks
 Computer-based securities
market
 ECNs automatically match
buyers and sellers
 Individuals open an
account with a broker-dealer
 Investors can trade “after hours”
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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© iStockphoto.com/Skip Odonnell
© The Studio Dog/Photodisc/Getty Images

21. Teaching Personal Finance
• Many states have adopted personal finance
requirements in High School/College
• Four states require a course for graduation, other
states integrate lessons into other classes
• Studies show courses help college students
• Many students are learning from household woes
• While three-quarters of students report money
management knowledge, only 52% have savings
accounts
Source: http://www.usnews.com/education/blogs/high-school-notes/2011/08/26/states-push-to-teach-personal-finance-in-schools 21
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

22. Personal Investing
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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What are your short-term and long-term goals?
Given your budget, how much are you able to invest?
How long can you leave your money invested?
How concerned are you about the tax implications of
your investments?
How much tolerance do you have for risk?
DIVERSIFICATION
© The Studio Dog/Photodisc/Getty Images

23. Symbolic Logic: Do You LUV
this HOG’s DNA?
Every publicly traded corporation is identified by a
unique combination of letters known as stock symbols.
Can you Guess These?
Google Harley-Davidson
3M Genentech
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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GOOG HOG
MMM DNA
JAVA LUV
Sun Microsystems Southwest Airlines
© Rubberball/ Jupiterimages
Source: What Is a Stock Symbol and How Do I Find the Symbol for a Company?, BusinessKnowledgeSource.com website:
http://businessknowledgesource.com/investing/what_is_a_stock_symbol_and_how_do_i_find_the_symbol_for_a_company_021903.html, accessed August 29, 2008; Stock Symbol Identifiers, StockMaven.com website,
http://www.stockmaven.com/symbols.htm, accessed August 29, 2008; Stock Tickers and Ticker Symbols, Money-zine.com website, http://www.money-zine.com/Investing/Stocks/Stock-Tickers-and-Ticker-Symbols/, accessed August 9, 2009.

24. Choosing a Broker:
Access to the Markets
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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• Individuals must use a broker to trade stocks on the
organized exchanges and OTC market
• Full Service Brokers
Provide a range of services
• Discount Brokers
Basic buy/sell capabilities
• The competition between brokers is intense and both
attempt to offer more services
• Once you decide on a broker, you open an account
© The Studio Dog/Photodisc/Getty Images
© Tetra Images/ Jupiterimages

25. Buying Securities
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Market Orders –
buy or sell a security
at the current
market price
Limit Orders –
Place limits on the price
at which orders
are executed

26. Strategies for Investing in Securities
• Investing for Income
• Market Timing
• Value Investing
• Investing for Growth
• Buying and Holding
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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27. Stock Indices: Tracking the Trends
Standard and Poor’s 500:
Tracks 500 stocks and
weighs the total market
value of each stock
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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Stock Index:
Tracks how the prices of
a specific set of stocks
have changed
Dow Jones Industrial Average (DJIA) – most widely
followed index. Tracks 30 stocks picked by The Wall
Street Journal editors.

28. Major Stock Price Indices
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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29. Tracking the Performance
of Specific Securities
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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30. 10
Looking Back
• What is the role of financial markets in the U.S. economy? Who are the key
players?
• What are the key laws that govern the way financial markets operate and what
is the impact of these laws?
• What are the major types of securities that are traded in securities markets?
• How are securities issued in the primary market and traded in secondary
markets?
• How do you interpret the information provided in the stock quotes available on
financial websites?
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
© 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r
p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .
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