1. Stocks & Stock Market Common Stock : Ownership shares in a publicly held corporation Primary Market : Market for the sale of new securities by corporations. Secondary Market : Market in which previously issued securities are traded among investors. Financial Market : is a market where securities are issued and traded. Initial Public Offering (IPO) : First offering of stock to the general public. Seasoned Offerings : Sales of new shares by issuing additional shares.

2. Reading the Stock Market Listing Dividend : Peridic cash distributionfrom the firm to its shareholders Price-earnings (P/E) multiple : Ratio of stock price to earnings per share. The high P/E Ratio suggests that investors think that the firm has good growth opportinities Commodity Channel Index: Shows the upper and lower deviations from statistical avarage and helps to follow cash flows to the stock. If it is below -100 signals buy; if it is over +100 signals sell. Moving Avarage (MO): Statistical moving avarage of the close prices in a given period. In case the close prices cuts upper the MO signals buy; otherwise sell

3. Reading the Stock Market Listings Relative Strength Index : measures the interior strength of the stock. Generally it is callculated for 14 days. It signals buy below 30 or sell over 70 Stochastic Oscilator : Compares the close price with the moving prices in a given period. It signals buy below 20 or sell over 80 Volume : quantity of shares that is traded in a day in numbers or in monetary value

4. Book Values, Liquidation Values, and Market Values  Book Value: Net Worth of the Firm according to the Balance Sheet  Liquidation Value: Net proceeds that could be realized by selling the Firm’s Assets and paying off its creditors.  Market price need not, and generally does not, equal either book value or liquidation value. Unlike market value, neither book value nor liquidation value treats the firm as a going concern. MarketValue: Market Value: is the amount that investors are willing to pay for the shares of the firm. Market Value Balance Sheet - Financial statement that uses market value of assets and liabilities.

5. Valuing Common Stocks Expected Return - The percentage yield that an investor forecasts from a specific investment over a set period of time. Sometimes called the holding period return (HPR). Expected Return = r = Div 1 + P 1 – P 0 P0P0 Today’s Price and Tomorrow’s Price

6. Valuing Common Stocks Expected Return P 1 – P 0 P0P0 The formula can be broken into two parts. Dividend Yield + Capital Appreciation Div1 P0P0 +

7. Valuing Common Stocks Dividend Discount Model Computation of today’s stock price which states that share value equals the present value of all expected future dividends. H - Time horizon for your investment. P0P0 = present value of ( Div 1, Div 2, Div 3,..., Div t,...,) Div 1 1 + r P 0 = Div 2 (1 + r) 2 Div H + P H (1 + r) H ++... + The value of a stock is the present value of the dividends it will pay over the investor’s horizon plus the present value of the expected stock price at the end of that horizon

8. Valuing Common Stocks Dividend Discount Model  With no Growth P 0 =  With Constant Growth P 0 = DIV 1 r  With Nonconstant Growth r - g DIV 1 Div 1 1 + r P 0 = Div 2 Div H (1 + r) H ++... + (1 + r) 2 P H + (1 + r) H Expected rates of return = dividend yield + growth rate

9. Growth Stocks & Income Stocks Plowing earnings back into new investments may result in growth in earnings and dividends but it does not add to the current stock price if that money is expected to earn only the return that investors require. Plowing earnings back does add to value if investors believe that the invested earnings will earn a higher rate of return. Payout Ratio : Fraction of earnings paid out as dividends. Plowback or Retension Ratio : Fraction of earnings retained by the firm. g = return on equity * plowback ratio Growth Stocks : The future growth of earnings Income Stocks : Principally for the cash dividends

10. There are no free lunches on Stock Exchange Markets Technical Analysis: Investors who attempt to identify undervalued stocks by searcing for patterns in past stock prices Random Walk : Security prices change randomly, with no predictable trends or patterns Fundamental Analysis: Investors who attempt to find mispriced securities by analyzing fundamental information, such as accountiing data and business prospects. Efficient Market : in which prices reflect all avaliable information ISTANBUL