7/29/2019 Student 18

1/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 1

Investing in the Future:

Securities andInvestment Strategies

7/29/2019 Student 18

2/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 2

Securities Investments

Stocks

Bonds

Mutual funds

7/29/2019 Student 18

3/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 3

Stocks: Important Terms

Stock certificate

Authorized stock

Issued stock

Unissued stock

Par value Stock split

7/29/2019 Student 18

4/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 4

Common Stock

Voting rights

Dividends

Limited liability

Liquidity

7/29/2019 Student 18

5/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 5

Preferred Stock

Convertible preferred stock

Cumulative preferred stock

7/29/2019 Student 18

6/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 6

Corporate Bonds

Secured bonds

Debentures

Convertible bonds

7/29/2019 Student 18

7/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 7

Corporate Bond RatingsInterpretation MoodysS&P Interpretation

Highest rating AaaAAA Prime quality

Very strong capacity to pay AaAA High grade

Highest rating AaaAAA Prime quality

Strong capacity to pay;

somewhat susceptible to

changing business conditions

AA Upper-medium grade

Very strong capacity to pay AaAA High grade

More susceptible than A ratedbonds

BaaBBB Medium grade

Strong capacity to pay;

somewhat susceptible to

changing business conditions

AA Upper-medium grade

Somewhat speculative BaBB Somewhat speculative

More susceptible than A ratedbonds

BaaBBB Medium grade

Speculative BB Speculative

Somewhat speculative BaBB Somewhat speculative

Vulnerable to nonpayment CaaCCC Poor standing;may be in default

Speculative BB Speculative

Highly vulnerable to

nonpaymentCaCC Highly speculative; often in default

Vulnerable to nonpayment CaaCCC Poor standing;may be in default

Bankruptcy petition filed or

similar action takenCC

Lowest rated; extremely poor chance of

ever attaining real investment standing

Highly vulnerable to

nonpaymentCaCC Highly speculative; often in default

7/29/2019 Student 18

8/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 8

U.S. Government Securities

and Municipal Bonds

Treasury notes

Treasury bills

Treasury bonds

U.S. savings bonds

Municipal bonds

Revenue bonds

Capital gains

General obligation

bonds

7/29/2019 Student 18

9/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 9

Retirement of Debt

Serial bonds

Term bonds

Sinking fund

Callable bonds

7/29/2019 Student 18

10/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 10

Mutual Funds: Important

Terms Load fund

No load fund Open end fund

Closed end fund

7/29/2019 Student 18

11/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 11

Types of Mutual Funds

Money market

Growth

Balanced

Income

Global

International

Index

7/29/2019 Student 18

12/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 12

Options and Financial

Futures Call options

Buyers

Sellers

Put options

BuyersSellers

7/29/2019 Student 18

13/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 13

Speculating in Commodities

Agricultural products

Raw materials

7/29/2019 Student 18

14/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 14

Securities Market

Primary

Initial public offerings

Secondary

Stock exchanges

7/29/2019 Student 18

15/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 15

Types of Stock Exchanges

Auction

NYSE

Dealer

NASD

ElectronicECNs

7/29/2019 Student 18

16/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 16

Buying and Selling Securities

Auction exchange (NYSE)

Exchange floor

Stock specialist

Dealer exchange (NASDAQ)

Computer

Market maker

Electronic communication networks

Computer

Broker

7/29/2019 Student 18

17/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 17

Regulation of Securities

Markets Federal laws

State laws

Industry self-regulation

7/29/2019 Student 18

18/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 18

Ask These Questions

Before You Invest1. Is the investment registered with the SEC?

2. Have you read the audited financial statements?3. Is a registered broker offering the investment?

4. Whats in it for the person touting the investment?

5. Should you trust e-mail/bulletin board advice?

7/29/2019 Student 18

19/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 19

Ask These Questions

Before You Invest6. Are you being pressured to act?

7. Does the investment promise youll get rich quick?

8. Does the investment match your objectives?

9. How easy would it be to sell your investment later?

10. Does the investment originate overseas?

7/29/2019 Student 18

20/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 20

Investment Objectives

Income

Growth

Safety

Liquidity

Tax concerns

7/29/2019 Student 18

21/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 21

Investment Portfolio

Rate of return

Asset allocation

Diversification

7/29/2019 Student 18

22/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 22

Buying and Selling

SecuritiesMarket Order

Limit Order

Day Order

Margin Trading

Stop Order

Open Order

Discretionary Order

Short Selling

7/29/2019 Student 18

23/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 23

Analyzing Financial News

Bull market

Rising market

Bear market

Falling market

7/29/2019 Student 18

24/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 24

Watching Market Indexes

and Averages

Dow Jones Industrial Average (DJIA)

Standard and Poors 500 (S&P 500)

Wilshire 5000

NASDAQ Composite Index

Nikkei 225 Index

FT-SE 100 Index

7/29/2019 Student 18

25/25

Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 25

Interpreting Financial News

Stock exchange reports

Bond quotation tables

Mutual fund quotations