2. Chapter
Nineteen
LEARNING GOALS
1. Describe the role of securities markets and of
investment bankers.
2. Identify the stock exchanges where securities are
traded.
3. Compare the advantages and disadvantages of
equity financing by issuing stock, and detail the
differences between common and preferred stock.
4. Compare the advantages and disadvantages of
obtaining debt financing by issuing bonds, and
identify the classes and features of bonds.
19-2
3. Chapter
Nineteen
LEARNING GOALS
5. Explain how to invest in securities markets and set
investment objectives such as long-term growth,
income, cash, and protection from inflation.
6. Analyze the opportunities stocks offer as
investments.
7. Analyze the opportunities bonds offer as
investments.
8. Explain the investment opportunities in mutual funds
and exchange-traded funds (ETFs).
9. Describe how indicators like the Dow Jones Industrial
Average affect the market.
19-3
4. Profile
MARIA BARTIROMO
CNBC
• Emmy Award-winning
journalist, Bartiromo’s analysis
of day-to-day Wall Street has
made her the face of investing.
• Started as an overnight
producer for CNN before
moving to CNBC.
• She’s lead anchor at two of
CNBC’s biggest shows, has
written several books and
numerous columns.
19-4
5. Chapter
Nineteen
NAME that COMPANY
When the price of their stock rises to a certain
level, many companies will split the stock in
order to make the stock appear more
affordable. However, this company run by
America’s most successful investor has never
split its stock even when the price of the
company’s stock reached $150,000 a share
(that’s right $150,000 for one share.)
Name that company!
19-5
6. The Function
of Securities
Markets
The BASICS of
LG1 SECURITIES MARKETS
• Securities markets are
financial marketplaces for
stocks and bonds and serve
two primary functions:
1. Assist businesses in finding
long-term funding to finance
capital needs.
2. Provide private investors a place
to buy and sell securities such
as stocks and bonds.
19-6
7. The Function
of Securities
Markets
TYPES of
LG1 SECURITIES MARKETS
• Securities markets are divided into primary and
secondary markets:
- Primary markets handle the sale of new securities.
- Secondary markets handle the trading of securities
between investors with the proceeds of the sale going to
the seller.
• Initial Public Offering (IPO) -- The first
offering of a corporation’s stock.
19-7
8. The Role of
Investment
Bankers
INVESTMENT BANKERS
LG1 and INSTITUTIONAL INVESTORS
• Investment Bankers -- Specialists who assist in
the issue and sale of new securities.
• Institutional Investors
-- Large organizations such
as pension funds or mutual
funds that invest their own
funds or the funds of others.
19-8
9. Stock
Exchanges STOCK EXCHANGES
LG2
• Stock Exchange -- An organization whose
members can buy and sell (exchange) securities on
behalf of companies and individual investors.
• Over-the-Counter (OTC) Market -- Provides
companies and investors with a means to trade
stocks not listed on the national securities
exchanges.
• NASDAQ -- A telecommunications network that
links dealers across the nation so they can exchange
securities electronically.
19-9
10. Stock
Exchanges TOP STOCK EXCHANGES
LG2
• NYSE Euronext
• NASDAQ
• London Stock
Exchange
• Tokyo Stock Exchange
• Deutsche Borse
19-10
11. A PLACE for
SMALL COMPANIES to CALL HOME
(Spotlight on Small Business)
• Since the recent financial crisis, small businesses
have found it difficult to secure financing from
banks.
• David Weild wants a new stock exchange where
small companies can raise needed capital.
• Though this is a new idea in the U.S., China
established ChiNext which is designed for start-
up companies.
19-11
12. Securities
Regulations
and the SEC
The SECURITIES and
LG2 EXCHANGE COMMISSION
• Securities and Exchange Commission
(SEC) -- The federal agency responsible for
regulating the various stock exchanges; created in
1934 through the Securities and Exchange Act.
• Prospectus -- A condensed version of economic
and financial information that a company must file
with the SEC before issuing stock; the prospectus
must be sent to prospective investors.
19-12
13. Progress
Assessment PROGRESS ASSESSMENT
• What’s the primary purpose of a securities
exchange?
• What does NASDAQ stand for? How does this
exchange work?
19-13
14. How Businesses
Raise Capital by
Selling Stock
LEARNING the
LG3 LANGUAGE of STOCKS
• Stocks -- Shares of
ownership in a company.
• Stock Certificate --
Evidence of stock ownership.
• Dividends -- Part of a firm’s
profits that the firm may
distribute to stockholders as
either cash or additional
shares.
19-14
15. Advantages &
Disadvantages
of Issuing Stock ADVANTAGES of
LG3 ISSUING STOCK
• Stockholders are owners of
a firm and never have to be
repaid their investment.
• There’s no legal obligation to
pay dividends.
• Issuing stock can improve a
firm’s balance sheet since
stock creates no debt.
19-15
16. Advantages &
Disadvantages
of Issuing Stock DISADVANTAGES of
LG3 ISSUING STOCK
• Stockholders have the right to vote for a
company’s board of directors.
• Issuing new shares of stock can alter the control
of the firm.
• Dividends are paid from after-tax profits and are
not tax deductible.
• The need to keep stockholders happy can affect
management’s decisions.
19-16
17. Issuing Shares
of Common and
Preferred Stock
TWO CLASSES of STOCK
LG3
• Common Stock -- The most basic form; holders
have the right to vote for the board of directors and
share in the profits if dividends are approved.
• Preferred Stock -- Owners are given preference
in the payment of company dividends before common
stock dividends are distributed. Preferred stock can
also be:
- Callable
- Convertible
- Cumulative
19-17
18. Progress
Assessment PROGRESS ASSESSMENT
• Name at least two advantages and
disadvantages of a company’s issuing stock as a
form of equity financing.
• What are the major differences between common
stock and preferred stock?
19-18
19. Learning the
Language of
Bonds
LEARNING the
LG4 LANGUAGE of BONDS
• Bond -- A corporate certificate indicating that an
investor has lent money to a firm (or a government).
• The principal is the face
value of the bond.
• Interest -- The payment the
bond issuer makes to the
bondholders to compensate
them for the use of their
money.
19-19
20. Advantages &
Disadvantages
of Issuing Bonds ADVANTAGES of
LG4 ISSUING BONDS
• Bondholders are creditors, not owners of the
firm and can’t vote on corporate matters.
• Bond interest is tax deductible.
• Bonds are a temporary source of funding and
are eventually repaid.
• Bonds can be repaid before the maturity date if
they contain a call provision.
19-20
21. Advantages &
Disadvantages
of Issuing Bonds DISADVANTAGES of
LG4 ISSUING BONDS
• Bonds increase debt and can affect the market’s
perception of the firm.
• Paying interest on bonds is a legal obligation.
• If interest isn’t paid, bondholders can take legal
action.
• The face value of the bond must be repaid on
the maturity date.
19-21
22. Advantages &
Disadvantages
of Issuing Bonds BOND RATINGS
LG4
Rating
Moody’s S &P Fitch Description
Aaa AAA AAA Highest Quality
Aa AA AA High Quality
A A A Upper-Medium Grade
Baa BBB BBB Medium Grade
Ba BB BB Lower-Medium Grade
B B B Speculative
Caa CCC, CC CCC Poor
Ca C DDD Highly Speculative
C D D Lowest Grade
19-22
23. Different
Classes of
Bonds
DIFFERENT CLASSES of
LG4 CORPORATE BONDS
• Corporations can issue two classes of bonds:
1. Unsecured bonds
(debenture bonds):
not backed by
specific collateral.
2. Secured bonds:
backed by
collateral (land or
equipment).
19-23
24. Special Bond
Features SPECIAL FEATURES in
LG4 BOND ISSUES
• Sinking Fund -- Reserve account set up to
ensure that enough money will be available to repay
bondholders on the maturity date.
• Callable bonds permit bond issuers to pay off the
principal before the maturity date.
• Convertible bonds allow bondholders to convert
their bonds into shares of common stock.
19-24
25. Progress
Assessment PROGRESS ASSESSMENT
• Why are bonds considered a form of debt
financing?
• What does it mean if a firm issues a 9%
debenture bond due in 2025?
• Explain the difference between an unsecured and
secured bond.
• Why are convertible bonds attractive to
investors?
19-25
26. How
Investors Buy
Securities
BUYING SECURITIES
LG5
• Stockbroker -- A
registered representative who
works as a market
intermediary to buy and sell
securities for clients.
• Online trading services,
such as TD Ameritrade,
E*Trade, and Scottrade,
offer securities trading
services online to buy and
sell stocks and bonds. 19-26
27. MONEY GOING UP in SMOKE
(Making Ethical Decisions)
• You recently received news that your Uncle Alex
passed away after a long battle with lung cancer
caused by smoking. He left you $25,000 in his
will, saying you were his favorite nephew.
• Your friend Jack recommends that you buy stock
in a well-known multinational firm that’s primary
product is tobacco.
• Will you invest your inheritance in a company that
markets tobacco?
19-27
28. Choosing the
Right
Investment FIVE INVESTMENT CRITERIA
Strategy
LG5
1. Investment risk
2. Yield
3. Duration
4. Liquidity
5. Tax consequences
19-28
29. Choosing the
Right
Investment INVESTING 101
Strategy Things to Do Before Making Your First Investment
LG5
• Take an investing class.
• Attend a conference.
• Head to the library and pick up these books:
- The Big Short
- The Intelligent Investor
- The Myth of the Rational Market
Source: Money, November 2010.
19-29
30. Choosing the
Right
Investment
AVERAGE ANNUAL RETURN of
Strategy
LG5 ASSET CLASSES (Since 1926)
Source: Ibbotson Associates and Morningstar.
19-30
31. Reducing Risk
by Diversifying
Investments DIVERSIFICATION
LG5
• Diversification -- Buying several different types
of investments to spread the risk of investing.
• If diversifying, an investor may put:
- 25% of his/her money into U.S. growth stocks
- 25% in government bonds
- 25% in dividend-paying stocks
- 10% in an international mutual fund
- The rest in a savings account
19-31
32. The SUN NEVER SETS on
STOCK OPPORTUNITIES
(Reaching Beyond Our Borders)
• Suggestions for building your financial future:
- Invest in global companies you know and that have
solid performance records.
- Invest in global stocks listed on U.S. exchanges.
- Contact U.S. brokers about American Depository
Receipts (ADRs).
- Invest in global mutual funds that focus on specific
countries or regions.
- Use extreme caution if investing in unstable
countries!
19-32
33. Reducing Risk
PRIMARY INVESTMENT SERVICES
by Diversifying
Investments
LG5 CONSUMERS NEED
• Savings and investing advice
• Help with 401k plans
• Retirement planning
• Tax planning
• Estate planning
• Education expense planning
Source: Investment Company Institute.
19-33
34. Progress
Assessment PROGRESS ASSESSMENT
• What is the key advantage of investing through
online brokers? What is the key disadvantage?
• What is the primary purpose of diversifying
investments?
19-34
35. Investing in
Stocks PERCEPTIONS of the MARKET
LG6
• Bulls: Investors who
believe stock prices
are going to rise.
• Bears: Investors who
expect stock prices to
decline.
19-35
36. Investing in
Stocks BEAR MARKET DECLINES
LG6 in the S&P 500
Source: Stock Traders Almanac 2011.
19-36
37. Investing in
Stocks SELECTING STOCKS
LG6
• Capital Gains -- The positive difference between
the price at which you bought a stock and what you
sell it for.
• Investors can also choose stocks according to
their strategy:
- Blue-chip stocks
- Growth stocks
- Income stocks
- Penny stocks
19-37
38. Stock Splits
STOCK SPLITS
LG6
• Stock Splits -- An action by a company that gives
stockholders two or more shares of additional stock
for every share that they own.
• Splits cause no change in the firm’s ownership
structure and no change in the investment’s
value.
• Firms can never be forced to spilt their stocks.
19-38
39. Buying Stock
on Margin BUYING STOCK on MARGIN
LG6
• Buying Stock on Margin -- Borrowing some of
the stock’s purchase cost from the brokerage firm.
• M
a
r
g
i
n
i
s
19-39
41. Understanding
Stock TOP FINANICIAL NEWS and
Quotations
LG6 RESEARCH SITES
• Yahoo Finance
• DailyFinance
• MSN Money
• Forbes
• Dow Jones & Co.
19-41
42. Investing in
Bonds IMPORTANT BOND QUESTIONS
LG7
• First-time bond investors generally ask two
questions:
- Do you have to hold a bond until the maturity date?
- How can I assess the investment risk of a particular bond
issue?
• Junk Bonds -- Bonds that are high-risk and
have high default rates.
19-42
44. Investing in
Mutual Funds &
Exchange- INVESTING in MUTUAL FUNDS
Traded Funds
LG8 and EXCHANGE-TRADED FUNDS
• Mutual Fund -- An organization the buys stocks
and bonds and then sells shares in those securities
to the public. The fund pools investors’ money and
buys stocks according to the fund’s purpose.
• Exchange-Traded Fund (ETF) -- Collections
of stocks and bonds that are traded on securities
exchanges, but are traded more like individual stocks
than mutual funds.
19-44
45. Investing in
Mutual Funds &
Exchange- WHAT MUTUAL FUNDS CAN
Traded Funds
LG8 LEARN FROM KaChing
1. Reform the ratings
system
2. Give information for
free
3. Cut out useless fees
4. Be transparent
5. Share insights
Source: Fast Company, March 2010.
19-45
46. Investing in
Mutual Funds &
Exchange- PERCENTAGE of HOUSEHOLDS
Traded Funds
LG8 OWNING MUTUAL FUNDS
Source: Investment Company Institute Factbook.
19-46
47. Investing in
Mutual Funds &
Exchange-
Traded Funds VARIETIES of ETFs
LG8
Source: Schwab and E*Trade.
19-47
50. Progress
Assessment PROGRESS ASSESSMENT
• What is a stock split? Why do companies
sometimes split their stock?
• What does buying stock on margin mean?
• What are mutual funds and ETFs?
• What is the key benefit to investors in investing in
a mutual fund or ETF?
19-50
51. Understanding
Stock Market
Indicators
KEY STOCK MARKET
LG9 INDICATORS
•Dow Jones Industrial Average -- The average
•Critics say the 30-company Dow is too small a
•S&P 500 tracks the performance of 400 industrial,
19-51
52. Riding the
Market’s Roller
Coaster MARKET TURMOIL
LG9
• The stock market has its shares of ups and
downs:
- October 29, 1929 - Black
Tuesday; the market lost 13%
of its value.
- October 19, 1987 - The
market suffered its worst one-
day drop when it lost 22% of its
value.
- October 27, 1997 - Fears of
an economic crisis in Asia
cause widespread panic and
19-52
losses.
53. Riding the
Market’s Roller
Coaster TURMOIL in the 2000s
LG9
• The market collapsed into a deep decline in
2000-2002 when the dot-com bubble burst.
- Investors lost $7 trillion in market value.
• Starting in 2008, the collapse of the real estate
market sent financial markets into panic.
- The U.S. government made significant investments in
private banks and offered a large stimulus package to re-
energize the economy.
19-53
55. Riding the
Market’s Roller
Coaster
The UPS and DOWNS
LG9 of the MARKET
• Program Trading -- Giving instructions to
computers to automatically sell if the price of a stock
dips to a certain point to avoid potential losses.
• Analysts believe program trading caused the
turmoil in 1987.
• The exchanges created mechanisms to restrict
program trading.
19-55
56. Riding the
Market’s Roller
Coaster
WHO’S at FAULT for the
LG9 ECONOMIC CRISIS?
• Wall Street - Issued exotic securities; paid excessive
compensation based on bonuses; and investment banks got
the SEC to relax capital requirements.
• Main Street - Americans lived beyond their means;
lenders gave favorable loans to homebuilders; greedy
homeowners took out equity loans; and teaser mortgage
rates let people live large.
• Washington - Gramm-Leach-Billey Act allowed
commercial and investment banks to partner; housing
interest rates were kept low; and Community Reinvestment
Act forced lending to people with bad credit.
Source: Fortune Magazine, www.fortune.com, accessed July 2011.
19-56
57. CLEANING UP the STREET
(Legal Briefcase)
• Congress passed the Dodd-Frank Financial Reform
and Consumer Protection Act into law on July 21,
2010.
• Gives the government power to seize and shutter
large financial institutions on the verge of collapse in
an effort to prevent further bailouts.
• Formed an independent consumer protection agency
housed within the Federal Reserve, protecting
borrowers against a host of financial abuses ranging
from payday loans to mortgages and credit cards.
19-57
58. Progress
Assessment PROGRESS ASSESSMENT
• What does the Dow Jones Industrial Average
measure? Why is it important?
• Why do the 30 companies comprising the Dow
change periodically?
• Explain program trading and the problems it can
create.
19-58
Editor's Notes
Company: Berkshire Hathaway
See Learning Goal 1: Describe the role of securities markets, and of investment bankers.
See Learning Goal 1: Describe the role of securities markets, and of investment bankers. Facebook and Groupon are expected to have IPOs in 2011 that will raise billions for the companies.
See Learning Goal 1: Describe the role of securities markets, and of investment bankers. Investment bankers help companies by: (1) gaining approval from the SEC for a firm to issue stocks or bonds and (2) underwriting.
See Learning Goal 2: Identify the stock exchanges where securities are traded. In 2011, the NYSE Euronext agreed to be acquired by Deutsche Borse AG for about $10 billion. The trading floor is largely symbolic now as most trading is done electronically.
See Learning Goal 2: Identify the stock exchanges where securities are traded. Top Stock Exchanges This slide profiles the largest stock exchanges in the world. To be listed on the NYSE, the company must have at least 2200 shareholders, average daily volume of at least 100,000 shares, a market cap of $750 million, or pretax earnings of $10 million. NASDAQ is an acronym which stands for the National Association of Securities Dealers Automated Quotations. London Exchange merged with the Italian Exchange, both of which have been operating for over 200 years. 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 trading similar to NASDAQ. The Deutsche Borse is located in Frankfurt, Germany.
See Learning Goal 2: Identify the stock exchanges where securities are traded.
See Learning Goal 2: Identify the stock exchanges where securities are traded. The Securities and Exchange Act also prohibits insider trading by using knowledge or information gained through a person ’s position in a firm that allows them to benefit unfairly.
The primary purpose of a securities exchange is to allow members of the exchange to buy or sell securities on behalf of investors. NASDAQ stands for National Association Securities Dealers Automated Quotations. This exchange is completely electronic allowing for orders to be quickly matched up via computers.
See Learning Goal 3: Compare the advantages and disadvantages of equity financing by issuing stock, and detail the differences between common and preferred stock.
See Learning Goal 3: Compare the advantages and disadvantages of equity financing by issuing stock, and detail the differences between common and preferred stock.
See Learning Goal 3: Compare the advantages and disadvantages of equity financing by issuing stock, and detail the differences between common and preferred stock.
See Learning Goal 3: Compare the advantages and disadvantages of equity financing by issuing stock, and detail the differences between common and preferred stock. In the event of bankruptcy, the rights of common stock holders are subordinated to preferred stock holders.
Advantages of issuing stock: 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: equity holders have the right to vote, dividends are not tax deductible, and the need to keep shareholders happy can affect managers decisions. Common stock holders have the right to vote, while preferred stock holders do not. Preferred stock holders have rights if the company enters bankruptcy. Preferred stock holders receive a fixed dividend, while common holders are not guaranteed to be paid a dividend.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds. Unlike dividends, interest payments are tax deductible.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds. The rating agencies of Moody ’s and Standard & Poor’s have been under fire for highly rating some of the investment firms that issued mortgage backed securities. For example, Lehman Brothers received positive ratings within days of its collapse.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds.
See Learning Goal 4: Compare the advantages and disadvantages of obtaining debt financing by issuing bonds, and identify the classes and features of bonds.
Bonds are considered debt financing, since they must be paid back when the bond matures. A 9% debenture bond due in 2025 has a coupon rate or interest rate of 9 percent and matures in 2025. A secured bond is backed by some form of collateral. While an unsecured bond or debenture is not backed or secured by any collateral. Convertible bonds are attractive, because they give bondholders the option to convert their bonds into stock. This is attractive since stocks tend to appreciate faster than bonds do.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation. Investing 101 Some people want to jump right into an investment. This slide shows three ways to learn about investment strategies. Ask students: Would you take an investing class or jump straight into the market? Would you know how to do the needed research?
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation. Average Annual Return of Asset Classes This slide profiles average returns since 1926 for various asset classes. Although the recession since 2008 has been harsh, this chart shows that over the long-term equity is a solid investment. Ask students: Why do you think small companies have a higher rate of return than any other asset class?
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation. Diversification helps spread risk by buying different types of investments.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation.
See Learning Goal 5: Explain how to invest in securities markets and set investment objectives such as long-term growth, income, cash, and protection from inflation. Primary Investment Services Consumers Need This slide presents the needs of consumers when it comes to financial planning. Today ’ s brokers provide more than simply the buying and selling of stocks and bonds. Companies like Charles Schwab and Fidelity help individuals plan for the future.
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. The goal of diversification is to reduce the overall risk an investor assumes.
See Learning Goal 6: Analyze the opportunities stocks offer as investments.
See Learning Goal 6: Analyze the opportunities stocks offer as investments. Bear Market Declines This slide profiles the bear market declines over the past forty years. The past decade has been abysmal with two significant bear markets. 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?
See Learning Goal 6: Analyze the opportunities stocks offer as investments.
See Learning Goal 6: Analyze the opportunities stocks offer as investments. 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 increase, raising the stock price (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. Since 1975, Wal-Mart has split their shares on eight different occasions. If an individual investor purchased 100 shares in 1980 they would own 25,600 shares after adjusting for splits!
See Learning Goal 6: Analyze the opportunities stocks offer as investments. Investors purchasing on margin are increasing their purchasing power, so they can own more stock without fully paying for it. Students should know the risk associated with buying stocks on margin. Margin exposes investors to the following risks: You can lose more money than you invested. You may have to deposit additional cash or securities in your account on short notice to cover market losses. You may be forced to sell some or all of your securities when falling stock prices reduce the value 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 return on your investments.
See Learning Goal 6: Analyze the opportunities stocks offer as investments. Stock quotations are now readily available on numerous websites.
See Learning Goal 6: Analyze the opportunities stocks offer as investments. Top Financial News and Research Sites Financial information is now readily available online. This slide lists some of the sites where information can be easily gathered. If time allows, encourage students to visit these web sites and evaluate their usefulness. Ask students: Which of these web sites was the best? Why would it be a good idea to consult more than one of these web sites before deciding to invest?
See Learning Goal 7: Analyze the opportunities bonds offer as investments. A junk bond has a rating of BB or less.
See Learning Goal 7: Analyze the opportunities bonds offer as investments.
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs).
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs). What Mutual Funds Can Learn From KaChing KaChing is a web site where professional investors share everything about their portfolios. Fast Company shows how KaChing can help investors understand what they ’re getting into. 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!
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs). Percentage of Households Owning Mutual Funds This slide presents the percentage of US households owning mutual funds over the past 30 years. Ask the students – Do you or your parents own mutual funds? How did they get involved in purchasing them, and what type of research do they do before buying them? Did they develop investment objectives or was it based on some tip or advice? It should be pointed out to the students that people may get into investing for the right reasons and with right intentions (retirement, savings for college, vacations, home buying, etc.). However, it is very important to maintain discipline. Many people, if not most, deviate from these investment objectives and start to invest based on the so-called “hot tip.” Mutual funds should be treated as investments which you commit to based on researched information and not hot tip or quick hit gambling.
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs). Varieties of ETFs This slide lists three varieties of ETFs that are available. 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.) Traditional ETFs include: SPY which tracks the S&P 500 and TIP which tracks inflation protected government bonds. Niche ETFs include: IXJ which tracks the S&P Global Healthcare Sector. Exotic ETFs include: FXA which tracks the Australian Dollar and GLD which tracks the price of gold.
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs). The price per share for a mutual fund is referred to as the net asset value or NAV.
See Learning Goal 8: Explain the investment opportunities in mutual funds and exchange-traded funds (ETFs). This slide is based on Figure 19.8.
When a company splits its stock 2 for 1 the shareholders receive two shares of stock for each share they own. The current share price is cut in half, so the number of shares increases, the total value of the investment remains the same. The board may decide to split a company’s stock 2 for 1, 3 for 2 or any other ratio they determine is appropriate. The reason that a company splits its stock is to reduce the price of the stock which will hopefully increase the demand for the stock. When an investor buys on margin, they use money borrowed from their broker to purchase stock. A mutual fund is an investment fund that buys stocks and bonds then sells shares in those securities to the public. The pooling of funds allows small investors to invest in a broader selection of stocks and bonds. Most mutual funds are professionally managed. ETFs are similar to mutual funds, but are traded on exchanges like individual stocks and are passively managed. The key benefit to investing in a mutual fund or ETF is that the investor gets instant diversification.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market. The Dow Jones Industrial Average is the oldest index which was originally created in 1896 by Charles Dow and Edward Jones. The original average had twelve companies, one of which, GE, is still in the Dow Jones Industrial average after all these years.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market. The Wall Street of Now Since the economic crisis hit, Wall Street has taken many cuts. This slide shows how Bloomberg Businessweek sees the new way for Manhattan bankers to unwind.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market. The downturn of 1987 prompted the U.S. exchanges 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. If you watch programming on CNBC or MSNBC, you’ll see the phrase “curbs in” appear on the screen.
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market. Who ’s at Fault for the Economic Crisis? This slide reviews some of the players in the economic crisis. Like all complex problems, this crisis was not caused by one group. You could actually include another culprit (not listed on this slide): worldwide saving surplus. Gulf States, China, Japan and Brazil all reinvested export earnings in US dominated assets, primarily government bonds. This had the effect of keeping interest low, thus allowing consumers and the United States Government (as well as many state and local governments) to spend beyond their means, racking up massive consumer and federal debt. To discuss the crisis ask 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. )
See Learning Goal 9: Describe how indicators like the Dow Jones Industrial Average affect the market. Dodd-Frank represents the most sweeping change in financial regulation since the Great Depression. Although it ’s not perfect, the Dodd-Frank Act at least resolves some of the most pressing issues facing our economy today, while setting the stage for a stronger financial future.
The Dow Jones Industrial Average is the average price of 30 specific industrial stocks. It is important because it allows followers of the market to track the general direction of the stock market. The Dow will delete and add new companies to the Dow Jones Industrial Average to reflect increased economic importance of a particular company or industry. Recently, Cisco and Travelers replaced Citi and GM. Program trading occurs when investors give instructions to their computers to execute a sell order if the stock price dips to a certain point. Many attribute the stock market crash of 1987 to program trading as computer sell orders caused many stocks to fall to incredible levels.
