1. Securities and Investments Gateway to Business Fall 2007

2. Topics Securities Common Stock, Bonds, Mutual Funds Securities Markets Primary, Secondary Investment Banking Mutual Funds Risk and Return

3. What is a Security? An instrument for personal protection Legal claim on corporate assets and profits

4. Corporate Securities Issued (sold) by corporations to investors Represent legal claims against the corporation’s assets and profits Most common examples: Common Stocks Bonds

5. Corporate Securities Assets Corporate Bonds Debt (Borrowed Money) Common Stock Equity (Owners’ Money) Corporate Assets are financed by Debt and Equity

6. Common Stocks and Corp Bonds Corporate Bonds are Debt Securities money borrowed by the corporation money invested by lenders to the corporation provide fixed income to bondholders Common Stocks are Equity Securities money invested by owners of the corporation provide variable (residual) income to stockholders

7. Common Stocks and Corp Bonds Corporations pay Interest to Bondholders Failure to pay interest results in default Corporations pay Dividends to Stockholders Firms have no obligation to pay dividends When would they pay dividends? When wouldn’t they pay dividends?

8. How do Corps Issue (Sell) Stock? Initial Public Offering (IPO) Initial sale of a corporation’s stock to the “public” Known as “Going Public” Google IPO August 19, 2004 Issued 22.5 million shares of stock at $85 per share GOOG raised $1.9 Billion from Equity Investors in the Primary Market.

9. GOOG Stock Price in the Secondary Market

10. Price-Earnings (P/E) Ratio P/E ratio is Stock Price divided by EPS It is what investors are willing to pay for $1 of current Earnings i.e., it is the Market Value of $1 of current earnings How does Google’s stock price and P/E ratio compare to a more mature company like Proctor and Gamble?

11. Google valuation data

12. Proctor and Gamble valuation data

13. Wal-Mart or Dicks Sporting Goods?

14. Wal-Mart (WMT) vs. Dick’s (DKS) November 9, 2007 WMTDKS Stock Price $42.90$27.50 Shares Out (million) 4,068110 Market Cap ($billion) 174.53.1 Sales ($billion) 348.63.1 Assets ($billion) 151.21.5 Net Income ($million) 11,280112 EPS$2.99$1.28 P/E Ratio 14.5x22x

15. WMT or DKS? GrowthJan-07Jan-06Jan-05Jan-04Avg Revenue10.59.611.34.99.1% Net income0.59.413.412.69.0% EPS1.111.216.414.410.8% GrowthFeb-07Jan-06Jan-05Jan-04Avg Revenue18.624.443.415.625.5% Net income54.35.930.538.032.2% EPS50.43.823.812.222.6%

16. Wal-Mart & Dick’s Since January, 2003

17. A recent check-in on Dick’s vs. Wal-Mart October 2008 – October 2010

18. Wal-Mart & Dick’s Each had their growth phase

19. Mutual Fund An investment company (corporation) that invests in common stocks and bonds issued by other corporations Allows diversification for individual investors Professional investment management A mutual fund can make money from its securities in two ways: a security can pay dividends or interest to the fund, or a security can rise in value. A fund can also lose money and drop in value.

20. Risk and Return Return Risk Short-term US Treasury securities Long-term US Treasury securities Corporate Bonds Large company Common Stocks Small company Common Stocks

21. Terms Market capitalization (market cap) Price-earnings ratio Common stock—ownership, residual income, dividends Corporate bond--debt security, fixed income, interest Investment bank IPO, going public Primary and secondary markets Mutual Fund

22. Web References Wall Street Journal (www.wsj.com)www.wsj.com New York Stock Exchange (www.nyse.com)www.nyse.com NASDAQ Market (www.nasdaq.com)www.nasdaq.com Investment Company Institute (www.ici.org)www.ici.org The Motley Fool (www.fool.com)www.fool.com Investor Words (www.investorwords.com)www.investorwords.com