HW check

Vocabulary, MK p 82

1 cash flow 2 equity

3 mutual funds 4 pension funds

5 principal 6 maturity

7 coupon 8 insolvent or bankrupt

9 creditors 10 dividends

11 market makers 12 bid / bid price

13 offer / offer price 14 yield

Match up verbs with nouns

borrow money deduct interest payments

finance activities issue shares

issue bonds pay (a rate of) interest

pay a (higher) return pay dividends

pay tax receive interest payments

raise money repay principal sell assets

deduct tax receive dividends repay bonds

repay money sell bonds

HW check: MK, p 81

• Meaning of T-notes, T-bonds and gilts?

• Who are market makers?

• Bid vs. offer price?

• What is a spread?

• What is inversely related?

• What does the yield of a bond depend on?

More about bonds (MK, p.81)• Meaning of T-notes, T-bonds and gilts?Treasury notes, treasury bonds and gilt-e_____ stock (UK)dged

SECURITIES*: BONDS (U16) DEBT FINANCINGDEBT FINANCING ( = ( = loans)

Risk rating: AAA (best) to C (worst)

Companies:

BONDSan interest paying

loan

which can be traded

on bond markets

securities, papers

* vrijednosnice

Governments:

LONG-TERM BONDS:

GILTS – GB

TREASURY BONDS-USA

T-bonds (10+ yrs)

TREASURY NOTES-USA

T-notes (less than 10 yrs) SHORT-TERM BONDS:

TREASURY BILLS (one-year)

More about bonds (MK, p.81)• Meaning of T-notes, T-bonds and gilts?Treasury notes, treasury bonds and gilt-e_____ stock (UK)• Who are market makers?Banks & b________ companies which q____ bid and offer price.• Bid vs. offer price?_____ – the highest price that the buyer is willing to pay

_____ – the price asked by sellers• What is a spread?D________ between the bid & offer prices (bid/ask or buy/sell)• What is inversely related?I_____ r____ in the economy & the price of existing bonds.• What is the yield of a bond and what does it depend on?I______ given by a bond. It depends on its c______ and its

purchase price.

dged

rokerage uote

Bid

Offer

ifference

nterest ate

ncome oupon

More about bonds (MK, p.81)• Meaning of T-notes, T-bonds and gilts?Treasury notes, treasury bonds and gilt-edged stock (UK)• Who are market makers?Banks & brokerage companies which quote bid and offer price.• Bid vs. offer price?Bid – the highest price that the buyer is willing to payOffer – the price asked by sellers• What is a spread?Difference between the bid & offer prices (bid/ask or buy/sell)• What is inversely related?Interest rates in the economy & the price of existing bonds.WHY?• What is the yield of a bond and what does it depend on?Income given by a bond. It depends on its coupon and its

purchase price.

Debt Finance vs. Equity Finance(MK, p.81)

BONDS FOR INVESTORS FOR ISSUERS

ADVANTAGE

DISADVANTAGE

Debt Finance vs. Equity Finance(MK, p.81)

BONDS FOR INVESTORS FOR ISSUERS

ADVANTAGE

DISADVANTAGE

generally safer

shares pay a higher return

bond interest is tax deductibleWHAT DOES IT MEAN?

debt increases a company’s financial riskHOW?

Comprehension CHECK, MK p 82

1 F Can you explain your answer?

2 T

3 T

4 F

5 T

6 F

7 F

8 F

Words/expressions to remember?

issue, mature, insolvent, coupon, tax advantages

Stocks vs. Bonds (video) HANDOUThttp://www.investopedia.com/video/play/stocks-versus-bonds

Stocks and bonds are the two biggest c____________ of most p_________... Stocks usually provide a l____-t____ g_____ and bonds tend to ensure a s_____ i______ s_____.... Bonds can be bought from l____ and n_______ g__________ and m_____ c__________, and a careful selection of stocks will include both l______ and s_____ c___________ from a d______ group of i_________. A combination of stocks and bonds is good for all kinds of investors.

omponents ortfoliosong erm rowthteady ncome tream

ocal ational

overnments ajor orporations

arge mall ompaniesiverse ndustries

Stocks vs. Bonds (video), cont.

For aggressive investors who want g_________, bonds may b______ the risk of stocks and stabilize the u____ and d_____ of the market, while stocks can help r___ a_____ investors h____ against the risk of inflation. Thus, stock purchases will provide high reward and help to hedge against inflation while bonds give you a dependable s_____ n___ against stock market losses.

rowth

alance

ps owns

isk verseedge

afety et

REVISION

FOUR TYPES OF ORGANISATIONS IN THE PRIVATE SECTOR

1) WITH UNLIMITED LIABILITY• __________________• ______________

2) WITH LIMITED LIABILITY• ___________________• ___________________

Sole proprietorship

Partnership

Private limited company

Public limited company

REVISION LIMITED vs. UNLIMITED

LIABILITY FOR DEBT

In businesses with limited liability, owners are responsible* for their company’s debts up to a certain amount if it goes out of business, and do not have to sell their personal assets to repay the debts.

* ______

Source: Longman Business English Dictionary

liable

LIMITED COMPANIES

• a legal ______ (independent legal existence from its

shareholders)

• shareholders have limited liability (liable for the

amount of capital ________)

• in case of bankruptcy, assets are __________ and

the company is wound up.

entity

invested

liquidated

LIMITED COMPANIES• owners put ___ the capital (divided into shares) • shareholders can _______the AGM and take a

share of the profit through dividend• shareholders elect a _______________ and a

Chairperson• the BoD ________managers to run day-to-day

business• documents which need to be ________ : the

Memorandum of Association and Articles of Association

• Registrar of Companies issues a Certificate of Incorporation

up

vote at

Board of Directors

appoint

drawn up

SynonymsBritish EnglishBritish English

companies

shares/stock EQUITIES

shareholders

ordinary shares

preference shares

flotation

Annual General Meeting

Articles of Association

Memorandum of Assoc.

authorised share capital

property

American EnglishAmerican English

corporations

stocks

stockholders

common stock

preferred stock

initial public offering

Annual Stockholders M.

Bylaws

Certificate of Incorporation

authorized capital stock

real estate

STOCKS

• Securities*:

- Stocks – equity financing

- Bonds – debt financing

- money market instruments:

• (derivatives, futures, options)

- * vrijednosnice, vrijednosni papiri

MK, p 87: Reading Stocks and Shares1J 2D 3A 4F 5G

6C 7K 8E 9I 10H11L 12 B

Handout: STOCKS & SHARES (1)

1. Most companies begin as ……………. limited companies.

2. If they want to grow / expand they must ………. capital.

3. One way to obtain capital for growth is to ……….. , i.e. apply to the stock exchange to become a public limited comp.

4. Smaller or newer companies usually sell their shares on the ………….……. markets.

private

raise

go public

over-the-counter

STOCKS & SHARES (2)5. Issuing shares for the first time is known as

………… a company (making a …….........) or _ _ _.

6. To guarantee to purchase all the securities at an agreed price on a certain day, if they cannot be sold to the public: ……………....

7. After stocks have been issued they can be traded on the .................... market at the stock exchange on which the company is ..................

8. The .............. value of a share – the price written on it – is rarely the same as its market price.

floating flotation

I P O

to underwrite

secondarylisted

nominal

A period in which most stocks fall in value is called a ............ market, and the period during with most stocks (& the stock .........) are rising is called a ......... market.

bearindex bull

Handout: match phrases with the same meaning

Issuing stocks and offering them for sale

To underwrite a stock issue

Equity

Market makers

How many sellers and buyers there are

The price a stock is currently being traded at on the s.e.

A period during which stocks are rising

Bear market

A period during which stocks are falling

Supply and demand

Market price

Bull market

Traders in stock who quote bid & offer prices

To guarantee to buy the stocks if there are no other buyers

Stocks or shares

Going public

Vocabulary: match phrases with the same meaning

Issuing stocks and offering them for sale

To underwrite a stock issue

Equity

Market makers

How many sellers and buyers there are

The price a stock is currently being traded at on the s.e.

A period during which stocks are rising

Bear market

Going public

To guarantee to buy the stocks if there are no other buyers

Stocks or shares

Traders in stock who quote bid & offer prices

Supply and demand

Market price

Bull market

A period during which stocks are falling

HW: RB, p 79

VI Write a summary (200-300 words) of the text based on the notes above