• Securities*:- Stocks – equity financing- Bonds – debt financing- money market instruments:
• (derivatives, futures, options)
- * vrijednosnice, vrijednosni papiri
STOCKS & SHARES (1)
1. Most companies begin as ……………. limited companies.
2. If they want to grow 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
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
PRIVATE →PUBLIC LIMITED COMPANY
FLOTATION / IPO / GOING PUBLIC• change a private company into a public company
by issuing shares and soliciting the public to purchase them
The bank has closed its initial public offer early because of overwhelming demand from investors.
The price of the company’ shares on the day it floated on the stock market beat all expectations.
Investors expected the share price to rise steeply after the company went public.
Source: Longman Business English Dictionary
MK, p 87: Reading Stocks and Shares
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: ……………..
floating flotation
I P O
to underwrite
VOCABULARY
Companies going public… • i____ shares• a_____ to a stock exchange• j____ over-the-counter market• a____ to be quoted or listed on a stock
exchange• f_____ a large number of requirements • u___ an investment bank to u________the issue
ssue
pply
oin
pply
ulfill
se nderwrite
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
BONDS
MK, U 16 (p 81)
Bonds• What?
• Who?
• Why?
What? Who? Why? • borrowing/lending:
face value (principal)
coupon (interest rate)• bond issuers
governments (government bonds)
companies (corporate bonds)
• bondholders
-individuals & institutional investors
-selling or holding bonds until maturity
Debt Finance vs. Equity Finance (MK, p.81)
• Scan the text for comparison
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
ADVANTAGEgenerally safer bond interest is tax
deductibleWHAT DOES IT MEAN?
DISADVANTAGEshares pay a higher return
debt increases a company’s financial riskHOW?
More about bonds (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)• 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.WHY?• 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.
Comprehension & vocabulary, MK p 82
1 F
2 T
3 T
4 F
5 T
6 F
7 F
8 F
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
The Financing of Corporate Activity, RB p 37Based on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc.
Match headings with paragraphs
Text headings:• Corporate finance• Stocks vs. Bonds• Bond risks
The Financing of Corporate ActivityBased on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc.
Features of well-organized writing:
1. Text headings
2. Topic sentences
3. Paragraphing
4. Connectors
CORPORATE FINANCE• Full text: Generally speaking, ...... three
different ways... First, ..., Second, ..., For example, ...Third,...
• Notes:
THREE WAYS OF CORPORATE FINANCE: 1.2. .... (e.g. ...)3.
CORPORATE FINANCE• Full text: Generally speaking, ...... three
different ways... First, ..., Second, ..., For example, ...Third,...
• Notes: THREE WAYS OF CORPORATE FINANCE:
1. internally, out of undistributed corporate profits
2. borrowing from financial institutions (e.g. a commercial bank, a savings and loan association, an insurance company)
3. issuing common stocks and bonds
STOCKS VS. BONDS• Full text: In contrast, ..., For example, ... This means that...
There are clearly important differences between..., First,... Second,..., On the one hand,..., On the other, ....
• Notes:
STOCKS vs. BONDS
-ownership -lending-less risky: 1.
2.
STOCKS VS. BONDS• Full text: In contrast, ..., For example, ... This means that...
There are clearly important differences between..., First,... Second,..., On the one hand,..., On the other, ....
• Notes:
STOCKS vs. BONDS
-ownership -lending-less risky: 1. legally prior
claim 2. income
“guaranteed”
Bond risks• Full text: clear paragraphing & topic sentences
• Notes:
CORPORATE BOND RISKS
1.
2.
3.
Bond risks• Full text: clear paragraphing & topic sentences
• Notes:
CORPORATE BOND RISKS
1. market value of bonds may fall, selling before maturity may cause you to incur a capital loss
2. price of existing bonds varies inversely with with interest rates in the economy
3. inflation
Introduction to Bonds (video) WATCH: http://www.investopedia.com/video/play/understanding-bonds
• Definition of bonds?• Term used for the price of a bond on the
primary market? • Maturities mentioned?• Coupons mentioned?• Why do corporations/governments issue
bonds?• What is important to remember about bonds?
What is a bond?• A d____ instrument issued by governments,
corporations and other entities in order to finance projects or activities. A l____ that investors make to the bond’s i______.
Term used for the price of a bond on primary market?
• F____ value. What is the face value of a bond?• The amount l_____ to the issuer.What does the investor receive in exchange for
the loan?• Interest, known as c______.
ebt
oanssuers
ent
oupon
ace
What is maturity?• The time when a financial instrument (such as
a bond or an insurance policy) becomes ready to be p_____. Bonds are issued for a specified period of time.
Maturities mentioned?• 1 year, 3 years or 30 yearsCoupons menioned?• 8%Why do corporations/govts. issue bonds?• To fund capital projects / public projects
aid
What is important to remember about bonds?
• The higher the interest rate, the more/less risk it is likely to carry.
• The higher the interest rate, the more risk it is likely to carry.
• HW: MK, p 83 (tasks) – 84 (three ads)
Reading: How to profit from bonds
- read the ads on p 84- answer questions- vocabulary
Intro to stocks?CORPORATE FINANCE, R p 37:
Corporations (PLC’s) finance their activities in ____ different ways. Internally, out of ________ ________ _____ and externally, by _________ from financial institutions such as commercial banks, _______ & ____ ___________ or insurance companies. Finally, corporations can issue ______ & _______.
* štedno kreditna zadruga
three
undistributedcorporate profits borrowing
savings loan associations*
stocks bonds
STOCKS VS. BONDS• A stock is an ________ _____ while a
bond is not. A bond purchaser is ______ money to a corporation.
• The stated value of a bond when it is first issued is its _______________ value.
• The amount lent to the corporation is the ______ and the corporation promises to repay it at a specified future date, also known as the bond’s ______ date.
• The bondholder also receives annual ______ payments.
ownership sharelending
face / par / nominal
principal
maturity
interest
STOCKS VS. BONDS, cont.• Bonds are considered to be less ______ for two
reasons:
1. Dividends can be paid to ___________ only after the interest rates due to bondholders have been paid. This means that bondholders have a _____ _____ _____.
2. If the corporation runs into problems, stockholders may receive no ________ and the value of their stock may ___________________.
Unless the corporation goes bankrupt, bondholders are guaranteed a fixed interest rate and the return of the _______ at _______.
risky
stockholders
legallyprior claim
dividendsplummet / plunge / sink
principal maturity
BOND RISKS – finish the sentences
Corporate bonds are not ....riskless. The market value of bonds... varies over time in accordance with ...the financial health of the corporation.If the corporation falls on hard times and its financial
integrity is shaken....the market value of your bond may....fall. Selling the bond on the bond market prior to...maturity (for less than its...nominal value) will cause...a capital loss.
BOND RISKS, cont.– finish the sentencesMarket prices of bonds are also affected by...changes in interest rates. Increases in interest
rates cause bond prices to ...fall. Decreases in interest rates cause ...bond prices to rise. In other words, the market
value of a bond rises if it pays a ...higher fixed interest rate than the current interest
rate.Bondholders face another element of risk due to...inflation. Substantial inflation will diminish the ...purchasing power of the...principal. You will have lent “dear” dollars, but...will be repaid in “cheap” dollars.
SECURITIES* (part II): 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
SHORT-TERM BONDS:
TREASURY BILLS (3-MONTH)
HW: MK 2a, 2b & 2c
Stocks vs. Bonds (video ex.) WATCH:
http://www.investopedia.com/video/play/stocks-versus-bonds
• Stocks and bonds are the two biggest 1… of most 2 … . Stocks usually provide a steady 3…, and bonds tend to ensure a 4…. . Bonds can be bought from 5…, and a careful selection of stocks will include 6… . A combination of stocks and bonds is good for all kinds of investors. For aggressive investors, bonds may 7... the risk of stocks and stabilize the 8… of the market, while stocks can help 9…. investors 10… against the risk of inflation.
Top Related